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spk00: and thank you for standing by. Welcome to the PATRIA first quarter 2021 earnings call. At this time, all participants are in a listening mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Josh Wood, head of shareholder relations. Please go ahead.
spk05: Thank you. Good morning, everyone, and welcome to PATRIA's first quarter 2021 earnings call. Joining on the call today are our Chief Executive Officer, Alex Saig, and our Chief Financial Officer, Marco DiPolito. Earlier this morning, we issued a press release and earnings presentation detailing our first quarter 2021 results, which you can find posted on our investor relations website at ir.patria.com or on Form 6K filed with the Securities and Exchange Commission. Any forward-looking statements made on this call are uncertain, do not guarantee future performance, and undue reliance should not be placed on them. PATRIA 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 factor section of our Form 20F Annual Report filed last month. As a foreign private issuer, PATRA reports financial results using International Financial Reporting Standards, or IFRS, as opposed to US GAAP. Additionally, we will report and refer to certain non-GAAP industry measures which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable measures calculated in accordance with IFRS are included in our earnings presentation. As a quick overview of the results, PATRIA generated $13.1 million in IFRS net income in Q1-21. On key non-GAAP measures for the first quarter, fee-related earnings were $17.3 million and distributable earnings were $17 million, or 12.5 cents per share. In alignment with our policy, we declared a dividend of 10.6 cents per share, payable on June 16th to shareholders of record as of June 2nd. With that, I'll now turn the call over to our Chief Executive Officer, Alex Saig. Alex?
spk03: Thank you, Josh. Good morning, everyone, and thank you for joining us today. We are very pleased with our first quarter results, which reflect solid execution across our investment platform. We are not only on track, but also leveraging current opportunities to deploy and commit larger amounts of capital into new investments, which accelerates our progress on key growth drivers for the firm. Our portfolio companies are performing very well, demonstrating the resilience of our investment approach and our ability to deliver outstanding returns to our LPs through many different environments. In private equity, we are delivering 750 basis points of outperformance relatively to the emerging markets benchmark. And our portfolio companies have capitalized on recent opportunities from consolidation completing a total of 34 M&A transactions in 2020, for example. In infrastructure, our investment opportunity is vast, and we have mapped about $80 billion in long-term development needs across Latin America, especially in Brazil, Chile, Colombia, and Peru. We are seeing record levels of government concessions, and PATRA is well positioned to be a selective bidder and wind projects with very attractive return profiles. Now, clearly the entire world is emerging from a health and economic crisis, and Latin America is emerging along with it. The latest pandemic data shows encouraging trends, suggesting that we may have turned a significant corner, with new cases and deaths both receding significantly from their highs in late April. There has also been substantial progress in the immunization programs with over 110 million vaccines given in the region. There's no question the second wave and recent environment has been difficult for society and many businesses. And regional macro concerns have clearly weighted on Patras shares in the last few months, alongside other companies with exposure to the region. While we cannot control these externalities, What can we do? We can continue to outperform. I want to emphasize the fundamental resilience of PATRA's business model and the impressive investment performance we are delivering. Over three decades, we have been fundraising, deploying capital, and generating attractive and, in most cases, top-portile returns for our LPs while navigating through many different environments. Over that time, we have faced, dealt, and learned to take advantage of the volatility in Latin America. Our returns have enabled us to raise several vintages. For example, for our two flagship funds, we are in vintage number six for private equity and vintage number four for infrastructure. And we have been able to scale these funds significantly. So let's focus on the key drivers of the investment lifecycle. Fundraising, deployment, and performance, and convey why we have such high confidence in our ability to deliver value to our shareholders. In order to raise larger and larger flagship funds every four years, we had to effectively deploy the capital entrusted to us by investors. In our business, periods of volatility can present better opportunities to put money to work. And indeed, we are seeing that play out now. For private equity in particular, you can see in our presentation that Fund 6 is now 68% deployed and reserved, and quickly closing in on the 75% threshold that would allow us to launch the fundraising of the next month. With our investment pipelines as strong as ever, we now see the timing of the private equity fundraising cycle accelerating, and we expect to be back in the market later this year with new investment activity transitioning to the new fund sometime in 2022. The most critical element of our long-term success is, of course, investment performance. And we believe Patra's approach to investing in the region is really a differentiator. In private equity, we are mostly investing in smaller companies at attractive valuation multiples and building them into market leaders through consolidation, and a relentless focus on fundamental value creation. Our two most recent private equity funds are performing phenomenally, with fund five at a 32% net IIR in US dollars, as it begins its harvesting phase, and fund six at a 19% net IIR in US dollars, while still in its investment period. In infrastructure, we are not typically buying mature assets but rather building new platforms or companies from the ground up to fill critical needs for society, which the government often does not have the means to address. Here we are seeing a vast range of opportunities to deploy capital into development projects. And we are in a position of strength to be a selective bidder. Across both strategies, we focus on resilient sectors of the economy that are linked to basic human needs, like healthcare, food, transportation, and energy, which have lower correlations to economic cycles and GDP growth. Over time, we believe our approach has led to more consistent returns and provided stability through market cycles. In our country-specific strategies targeting local investors, currently focused in Brazil, The question we hear recently is, with interest rates now reversing course, is the theme of the financial deepening in danger? Here, I think you have to step back and appreciate the magnitude. In Brazil, for example, the interbank rate has ranged from 10% to 20% for most of the last 20 years. Since 2016, we saw a plunge from 14% to 2%. and now recently reversing back to 3.5%, as the central bank looks to tame rising inflation. If anything, a modest rise in rates should continue to stabilize local currency, which we are currently seeing. With $18 trillion of negative yielding debt across the globe, we don't see the longer-term trend of low interest rates ending anytime soon. and we don't see moderately higher rates slowing the flow of capital into alternative assets. Indeed, we think the financial deepening in the region is well intact and will be a long-term trend that impacts PATRA positively. I'll wrap up by reiterating these very simple points. Number one, Our story for near-term fee-related earnings growth depends on our ability to deploy the remaining capital in our current flagship funds and go back to the market to raise new and larger funds. We have extremely high confidence in our ability to do that, and we are seeing that process accelerate. Number two, we believe the expansion of our country-specific strategies will be a steady organic growth engine for FRE as well, as these strategies achieve a more material scale over the next few years. Number three, we are actively exploring opportunities to use our IPO capital for strategic M&A, which we view as upside to an organic growth profile that is already very compelling. Number four, and lastly, and most importantly, we are constantly aware that our growth ultimately depends on one thing, great investment performance. If we continue to deliver strong returns, LPs will commit larger sums of capital to us, and for shareholders, the investment performance can generate substantial levels of performance fees. Considering those factors, it should be no surprise that we believe Patrick's stock presents an attractive valuation at current levels, and we believe our financial performance will make that clear over time. I'll now turn the call over to Marco for a deeper dive on the numbers. Marco, please.
spk01: Thank you, Alex, and good morning. Financial performance was solid for the first quarter and very much in line with our expectations, and our key business drivers are all progressing nicely. Fee-related earnings of $17.3 million in Q1 2021 were up 14% from $15.2 million in Q1-20, driven by a 20% increase in total fee revenues. Management fee of $31.3 million in Q1-21 were up 31% compared to Q1-20, largely driven by fee earnings AUM inflow from Private Equity Fund 6 and Infrastructure Fund 4. Personal expenses of $10.3 million were up from $7 million, mostly due to the shift in compensation structure post-IPO. FRE margin was 57% from the first quarter, reflecting very strong profitability. Patras FRE margin is among the highest in our broader peer group and exceeds the margins of global managers many times our size on an AUM basis. Fee earnings AUM for the Q1-21 rose to more than $8 billion, up 4% from the last quarter and 14% from one year ago. Keep in mind that our reported fee earnings AUM reflects the basis that is generating management fee in the current quarter. Since our flagship funds call for management fees semi-annually at the beginning and middle of the year, The increase in fee earnings AUM from Q4 to Q1, for example, is most attributable to capital deployed or reserved in the second half of 2020. There is now $2.8 billion of pending fee earnings AUM, which is not yet generating management fees as of the first quarter, and will drive top-line growth over the next several quarters. In our earnings presentation, we have added some additional details to show you that approximately $500 million has already been committed in the first quarter, mostly from private equity fund six, which will flow into fee earnings AUM and begin to generate management fee in the second half of 21. We're seeing attractive opportunities to invest in this environment, and our pipelines are very active. Actual capital deployment to our portfolio companies in the first quarter was $277 million, which includes amounts that were reserved in prior quarters. We noted that Private Equity Fund 6 was active in reserving capital for new investments in the first quarter, taking that fund from 51% to 68% committed. and moving us much closer to the 75% threshold for launching a new next fundraising campaign. This acceleration should allow us to go back to the market later this year, sooner than expected, and begin to accrue new capital into our fee earnings AUM sometime next year. Infrastructure Fund 4 remains at 56% invested and reserved, While we see that fund taking a little longer than private equity to come back to the market, we are also seeing a very active pipeline for deployment, with a record level of government concessions expected in the region for this year. Fundraising in the first quarter of $147 million was driven by our first infrastructure core fund, which is recognized as part of our country-specific strategies, as it is a publicly traded evergreen vehicle focused on local investors in Brazil. This type of fund typically must allocate capital quickly, and we had high visibility on the pipeline for this initial capital raise. We will have the opportunity to grow the fund through follow-on offerings once the initial capital is fully deployed, Demand for our country-specific strategies remains strong, and we expect to have opportunities to raise new capital in credit and real estate vehicles as the year progresses. Turning now to performance fees, the net accrued performance fee balance was $253 million at the end of the first quarter, compared to $276 million last quarter. The decrease was driven by local currency depreciation, a trend which spanned last year and continued into the first quarter of 2021. While this movement was clearly a headwind for our USD denominated fund performance, the modest impact to our accrual balance demonstrates an impressive resilience. Also, it is important to recognize that the accrual is a snapshot in time. And with the change of direction in interest rate in April and May, we have now seen a significant stabilizing effect on local currency, with the Brazilian real reversing course and appreciating against the US dollar. At current levels, all other things being equal, our March 31 net accrued performance fee would have been approximately $300 million if you accordingly adjusted the unrealized fair value in US dollar terms. While that is, of course, a theoretical estimate, it does give you an indication of where the balance could go if the currency remains at today's level or even improves further. We acknowledged that it's easier to be a buyer than a seller in the current environment, but we're seeing good progress toward monetizing our accrual. As Alex noted, Private Equity Fund's five performance continues to be outstanding with a net IRR of 32% and $182 million of net accrued performance fee. This is a fund with nine investments, one of which now has an exit agreement at 2.4 times invested capital. The companies are mostly mature, and two have filed for an IPO. While we need more exits in the fund to realize performance fees, there are multiple opportunities across the portfolio. In private equity III, the net accrual of $45 million is supported by receivables from prior exits, and one unrealized publicly traded investment, which we believe remains undervalued at its current share price, with significant potential to improve. In the end, realized performance fees will always be a product of the return we generate for our LPs, and thus, we will always sell investments when it is the right time for our LPs. How does all this translate to our earning outlook? What we want to convey more than anything is the outlook for fee-related earning is completely intact, irrespective of any macro perception about the region. Remember that our capital is locked up and we enjoy the flexibility to be patient when necessary and also aggressive when the time is appropriate. Near-term FRE growth is substantially driven by the deployment of our pending fee earnings AUM alone. If anything, today's environment is accelerating our growth path as we deploy capital faster and bring forward fundraising. We continue to expect nominal growth in FRE for 2021, compared to $71 million generated in 2020. at margin in the mid 50% range. This should be driven by very strong fee revenue growth north of 20% year over year. While exit transactions may be incrementally more difficult at the moment, we continue to feel great about the quality and the performance of our portfolio. We're still in the first half of the year and see significant opportunity for the backdrop to improve. especially if the economic reflation accelerates in the coming months. While that trajectory may have an impact on the level of performance fee we realize this year versus next, our ultimate performance expectations are unchanged. Altogether, you should take away the message that Patra's growth story is highly intact, and exciting opportunities lie ahead. As a newly public company, we recognize that the market is carefully evaluating our ability to execute. We have high conviction that we can deliver, and presuming we do, we see considerable value in our shares at today's price. Many thanks to all of our shareholders for your support, and to potential shareholders, we hope you will also consider joining us as partners on this journey. We're now happy to take your questions.
spk04: If you'd like to ask a question, please press star then one. If your question has been answered and you'd like to move yourself in the queue, press the pound key. Our first question comes from Craig Seegenthaler with Credit Suisse. Your line is open.
spk06: Good morning, Alessandri, Marco. Hope you're both doing well. I wanted to come back to slide 11. We can see that 41% of private equity fund six is now reserved for future transactions. And my question is, is all of the binding and reserve capital in the 41% based on transactions that have already been announced? And what are the major investments embedded in this 41%? And should we expect them to close over the next six months?
spk03: Yes. Hi, Greg. This is Alex here. Thanks for your question. Yeah, I think we, uh, on the 41%, uh, we, uh, we have, uh, two thirds of that, uh, already, no, not only committed, but, but, uh, deployed. Uh, we have, uh, on the beginning of the, of the fund, we did take advantage of the, uh, COVID where, uh, listed stock prices did, uh, suffer. and we did deploy capital buying the shares of two listed companies. One is a gas distribution network, gas stations, and the other one is a healthcare chain. So with that, they were not only committed but deployed. Then we did commit capital to a healthcare initiative in Latin America starting in Colombia. It's an integrated healthcare company starting with HMOs, healthcare management organizations in Colombia. There we committed a substantial amount of money, but we deployed a part of that. And we also then committed to others' thesis along this second quarter. One into a thesis in the fast-moving consumer goods distribution business and the other thesis in the cybersecurity business. With that, yes, we are then beefing up our commitment by the third quarter, which would have by the end of actually this quarter, the second quarter, surpass the 75% threshold, which enables us to market and actually have a first close of our next fund, private equity fund seven, and we should have around 40% of the fund deployed. By the end of the year, that 40% should go to be closer to 50, 60% deployed. I hope I answered your question there.
spk06: Great. Alex, that was very clear. Just for my follow up, the interest rate backdrop is constantly changing in Brazil. and it's now looking like rates are going to move higher, maybe faster than we thought three, six months ago. I know most of your clients are outside of Brazil, but how does this evolving interest rate backdrop change the domestic migration to equities and alternative thesis, which could impact flows into products like your infrastructure core fund inside of Brazil?
spk03: Well, thanks for the question again. I think very good question. Um, I think we have to take a look first on, on the magnitude of things, right? I think we, uh, uh, to be honest, you know, 2% interest rate in Brazil was way, way too low. Um, now we do have, uh, some inflation in the country. And of course, uh, during the COVID, uh, months, uh, months that were affected by COVID, of course not, but now, uh, now things coming back, the economy is rebounding. We do have some inflation, which is good actually for the economy. and central governments, not only in Brazil, putting up interest rates to cope with that. But we're talking about inflation being, if you extract from the inflation numbers, basically in Brazil, the commodity prices increase, that they did increase significantly over the last month. The inflation is basically on target. We have an inflation targeting system in Brazil, and the midpoint of that is 4%. So we see that X commodity prices, we see that it's pretty much in control. And the central bank in Brazil and other countries in Latin America are seeing the same thing, commodity prices pushing up inflation numbers. When you extract the commodity prices increase, the other items that compose inflation numbers, the indices are pretty much behaved. But nevertheless, of course, inflation versus last year that had no inflation. because of the crisis. So the high carbon interest rates is actually, in our view, positive, given the magnitude that we're talking about. We see in Brazil five to six by year end. We're now at three and a half. And that also helps, to be honest, Greg, for us to pass on to prices the inflation on our costs. On the private equity side, we do invest in very resilient and inelastic in nature businesses industries and businesses like healthcare for example we also do have a lot of investments in the agribusiness that now do follow the commodity prices so we had a really high profit prices in these businesses because of the again the increase in commodities agribusiness specifically on the infrastructure side even more so because of most of the revenues that we have on the infrastructure side are contracted and corrected by inflation So some inflation for us is actually good. And most of our funds in Brazil, as you mentioned, the the, our core infrastructure fund, they are denominated in inflation plus returns. Why? Because the revenues of these businesses are contracted and corrected by inflation. So our infrastructure core aims at an inflation plus six return. Uh, so if inflation goes to four is around 10 nominal invitation is three is around nine nominal. So the, the, the 6% above inflation is what investors look for. And normally the Brazilian central bank actually in a no, no same temperature, same pressure, uh, do position interest rates at a 2% above inflation inflation target. So inflation targeting around three and a half, four. interest rates will be around five and a half, six. And that's what the market actually predicts if you look at the forward yield curve. So actually, it's very, very positive, to be honest, in this magnitude. In this magnitude, it actually gives some oxygen to the economy. It means inflation also means that things are coming back, that businesses are coming back, that we've been able to pass on to prices some of the the inflation on our costs, basically the increase in commodity prices do affect some raw materials in some industries. Not the ones that we are exposed to. It's healthcare and other items are not really exposed to raw materials that buy whatever commodities like iron ore or whatever. But yes, everything looks more natural, more normal with a 4% inflation and a 6% interest rate. And again, our businesses in Brazil in local currency is inflation plus. I forgot to mention our REITs, our real estate investment trusts. They trade also the same way that the infrastructure investment trust trade as I just explained. Investors look at that yield at an inflation plus yield. So my example for the infrastructure investment trust was inflation plus six. Let's say that it's an inflation plus six again for the Real Estate Investment Trust, ABC. So if inflation goes up, as will the yields. Because in Brazil, we have rent also corrected by inflation. So again, it's a long answer to your question, but for me, and as I look into the businesses, in the magnitude that we are talking about, around the 4-ish kind of level inflation and the 6-ish kind of level interest rate, is actually positive for our businesses and for the economy in general.
spk06: Thank you, Alex.
spk04: Our next question comes from Mike Carrier with Bank of America. Your line is open.
spk07: Hey, guys, this is Dean Stephan on for Mike. You know, I know it's always difficult to forecast, but can you provide some additional color around the performance fee outlook for the remainder of 2021? You know, if you expect any performance fees to be generated over the next couple quarters, and maybe what percent of previously expected performance fees could be delayed into next year?
spk03: No, thank you very much, Ian, and thanks for participating in our call. This is Alex again here. Our performance fees for 2021 is basically composed by or derived from two funds, Private Equity Fund 3 and Private Equity Fund 5, as you know. On Private Equity Fund 3, our main asset there, which is 90% of the remaining net asset value of the NAV of the fund, is one listed company, which is an imaging diagnostics company. They had called Aliar, A-L-L-I-A-R. You can check that if you want to as it is a listed company in the Brazilian Stock Exchange, B3. And it had a great quarter. It had a great first quarter of 2021. And the results actually did please investors as the stock went up by 25% versus how the stock closed by the end of 2020. So great performance there. because this company, it is an imaging diagnostic company, but it does, it did negatively impact. It got negatively impacted by COVID because the elective surgeries were canceled with a rebound in the fourth quarter. In the first quarter, you can see the results of the company coming back and you can know the results are great and the stock price were up. So we were expecting to see that because of course we are a major shareholder of the company. And we expect this company to actually continue performing extremely well this year as we see the vaccination programs in the region, as mentioned, over 110 million people already vaccinated. It's a 500 and something million region, people region, so 40%. And the vaccination programs on a daily basis speeding up. So as that happens, we see actually then a good second and third quarter for that specific company. In addition to that, as I mentioned in my last question, Dean, with interest rates going up a little bit in Brazil and other regions in Latin America, we have a stabilization or even a strengthening of the currencies in the region because investors, local international, come back and they want to invest in the local fixed income market in order to find some yield, which is something hard to find around the world. So the increase in interest rates actually helps to stabilize the currencies in the region or even strengthen. Plus, we have a record high increase in commodity prices, as you know. If you look at the data, you can see one data or the other data, but approximately a 50% increase in commodity prices from their lows sometime last year. And that benefits the region as well, because the, some of the economies in the region do benefit from high commodity prices, copper in Chile, agribusiness, iron ore in Brazil, oil in Columbia, $70 of arrow, as you know. So all of that push is pushing on one side, on the macro side being the rebound in the region, which we look very positively, the commodity prices helping GDP growth, that helps the major economies in the region. The interest rates, a small hike, which actually stabilizes the currencies in the region, and in addition, actually strengthen the currency in the region since investors come and invest in these currencies in these markets to get some yields. On a micro level, Aliar, which is imaging diagnostic company for Fund3, performing extremely well with a 25% rebound on its share price this year. So as we look into the year, we're still here in May, we see that sometime this year we want to divest from the company, but I think it was great that we actually waited to see that rebound. And I think we want to wait for the second wave to go through and in third quarter, fourth quarter to do that divestments in order to actually ride all of these positive things that I just mentioned on RDR stock. But even if we do sell the stock at the current prices, because there's a catch-up in Fund 3, which now we can go offline and explain a little bit about. All of the actually resources, most of the resources from the sale of that stock actually goes to pay our performance fees because we have a full catch-up on Fund 3. So even if we did sell the stock at this moment, it won't affect much the overall number of performance fees for our private equity Fund 3. On private equity fund five, not only the returns are just stunning, as far as I'm concerned, of 32% net IR in US dollars as of the first quarter of this year. But out of the nine companies, seven of them, I think, are ready to go to an exit mode. Two of them were filed for an IPO. One of them is another healthcare company, an HMO integrated with hospitals. And the other one that we actually just filed today or yesterday is a network of gyms or fitness centers. So both of them I think will look into the year and using again all of the upsides and good news that I see the region announcing over the next quarters. Not only will IPO and the IPO includes some secondary trade for Fund 5, but also during the year we could do follow-ons and whatever. So as I stand right now, I think I'm pretty positive on fund three and fund fives, private equity fund three and private equity fund five in generating that performance fee. It might be a case, I know it's in third quarter, fourth quarter, there's another wave of COVID or something strange happens and diverses from the track that I am describing right now. It has been, as you know, very, very volatile during the last months. Thank God the second wave in the region has not been that bad and the vaccination programs are advancing, but who knows what can come up, another variant of the virus and whatever. But given the same temperature and the same pressure here, I'm positive on generating these fees this year. And more so, I'm very positive on FRE. I know that that was not part of your question, but if I can use the answer here to comment on FRE, Marco and I mentioned, I think during our call today, how we have been able to deploy more capital in our flagship funds, which increases then the fees that we charge, and also how we have been able to control expenses extremely disciplined, in a disciplined manner. So we see an increase in revenues, we see an increase in FRE above our expectations, and we see a mid 50 margins, and in the first quarter we posted 57% FRA margin. So not only I see, I'm pretty positive on the FRA side, as I am on the performance fee related side as well, given what I just said. Finishing up here, I think when we look into the very short term, which is 2022, I mentioned that, but Marco also mentioned, sorry to be redundant and emphasizing this, But as we do deploy more capital and with these kinds of very, very strong performance that we are posting for private equity fund five and fund six, fund six is 18% net IRR in U.S. dollars. We are looking to anticipate the fundraising of private equity fund seven, which in our projections was way back in late 22 and looking into having that fundraising happen late this year, beginning of next year. So that also will generate fees for us to charge in 22, which was not expected for us, at least, in our projections. So all of this, I think there's a great set and group of good news on the performance fees as well. Hope I answered your question. Your long answer here, I'm sorry, but hopefully I was able to answer it.
spk07: Yeah, that was that was very helpful. Thanks. And I guess just as a follow up, you know, given one of your peers announced the share buyback program, you know, yesterday, and your comments on the call today about the current stock valuation, you know, just wondering if we could get your thoughts around capital priorities, you know, if you guys have thought about share repurchases, and how you're kind of balancing capital return versus M&A and investment in the business. Thanks.
spk03: Yeah, great question as well. I think we had to address that. As we see our share price right now, around $15 per share, it is disappointing, of course, approximately a 15% drop from the IPO price. We all wanted it to be, of course, the other way, right? But I think it's too early to make the call on a share buyback program as of today. We have so many amazing opportunities on the M&A front, in addition to everything that I said on the FRE front and the PRE front, the performance fee earnings front, generating good distributable earnings. We see FRE this year better than our expectations. We see our margins better than our expectations in the mid-50s. We see everything that I just mentioned on the performance fee side So deploying some of the capital that we raised into these new ventures here. So it's a great momentum for Patria Group. It will be a great momentum for the stock as you guys follow us and actually see us performing as I just mentioned. So I think that the stock with the organic growth of what I just said should reflect that sometime soon, hopefully. So I would like to actually reserve, as of now, the capital that we raised in the primary issuance for the reasons that we raised it, which was primarily for acquisitions. And we have so many interesting things that we are talking and MOUs find that we are analyzing such great things again. But again, I'm always with a very clear view very sensible to the share price. Now, of course, we own 60% of the company, 6-0, us Brazilian shareholders and founders here. So any uptick in that price is extremely, extremely positive for us. And we'll keep a very open eye on, but as of today, I think it's too early to say, given the momentum that we have for Pratchett on the organic side and given the great opportunities that we have on the M&A side, but I'm sensitive and let's see what happens in the near future and we might come back to this subject, but not as of now. Thank you.
spk07: Got it. That was very helpful. Thanks again.
spk04: Our next question comes from Tito Labarda with Goldman Sachs. Your line is open.
spk08: Hi, good morning. Thanks for the call and taking my questions. Maybe a couple questions also. Just first on the accrued performance fees, how much of the decline was related just simply to the FX and with the FX sort of coming back since then, should those accrued performance fees kind of just go back to where you were at year end just to get some color on the FX volatility and the impact? And then my second question, I guess just given the underperformance in the stock and Has anything changed in your expectations since the IPO? And my sense from what you've been saying on the call so far is, you know, maybe FRE ahead of expectations with possible upside, maybe the performance fees, a little bit of uncertainty there. But I just want to confirm that that's consistent with how you're seeing, but if anything may have changed since the IPO, given the volatility in the market and in your stock. Thank you.
spk01: Hi, Tito. This is Marco. Good morning. So, related to your first question about net accrued performance fee, I made a comment on my initial remarks. The hypothetical number, if you do not consider the effects of our net accrued performance fee, would be at around 300, but that's just a hypothetical number. So, the straight answer to your question is around 50 million. When you look quarter over quarter, you see the detail fund by fund. And when you see the number being basically net, that's how much the NAV went up and matched to how much the currency depreciated, that it's around 10 percent in the quarter. Relative to your second question, all the fundamentals and key drivers of the business continue to be very solid. So, if anything, we've been able to deploy capital at a faster pace, that it's resulting on a view that our fundraising perspective for the flagship funds will accelerate. There's also the fact that the underlying portfolio performance has been very solid. I think in part of the fact that we have exposure to sectors that are performing quite well over the pandemic, namely agribusiness and logistics, and service-based, service-related sectors. There are the ones that are receiving most of the cash that has been coming through the governments to help in the pandemics. And that, of course, gives us a good perspective in terms of the performance fee So, on the fee-related earning side, we can expect an increasing amount of fee-paying AUM. I indicated in my presentation that during the first quarter, we have deployed or reserved about $500 million, but this amount will flow into our fee earnings AUM only on the second half of the year because of the way we draw the line to charge our fee earnings AUM. That's very positive news. And if you tie that to the information that last year we deployed $1.5 billion, it gives you an indication of how much more money we are deploying over this year. that will turn into revenues on the second half? I hope I have answered your question.
spk03: Male Speaker 1 Yeah, and maybe I can get the second part of the question here on the general macro view that you mentioned. I think, no, yes, for the first part, I think, of your question. I think we are optimistic on the FRE front versus our expectations, yes. from all the reasons I think we covered here, you know, further deployment and et cetera, and very disciplined control and expenses, et cetera. And on the performance fee side, you know, I think all of the data points for our, as of today are there. There's a major performance fee coming from our private equity fund three, where the most important asset there is a, is a imaging tax markets company that the stock traded 25% up. And we also see the real strengthening. As of today, we need 520, 530 reais versus 550, 560. So as of 20th of May, I think things are progressing in the right direction in order to realize that performance E4.3, in a good rise per share. And on Fund 5, the companies are performing extremely well. And, of course, it's also very important to say that the sector selection, which is key in our view, in my view, to do well in equities in the region in Latin America, in Fund 5 is amazing. Not only the companies are doing well, but it starts with the sector selection, health care. agribusiness, logistics, all of these sectors were extremely benefited from COVID. On the contrary, they were not negatively affected. They were positively affected. Now, the HMO business that we have, which is a major asset of Fund 5, was positively affected because we continue to receive the payments for our private payers. Now, we just serve the private side of the market. We don't serve the government for this company. So everybody was paying, but there was no elective surgeries. So the margins of the business and even though the business was extremely benefited last year and continue to be this year. We have a major agribusiness company in this fund five, which is a distributor of agribusiness products. We buy from Syngenta, from Dow and whatever, and we sell to farmers. Look what happened with the commodity prices, agribusiness prices in Brazil. Farmers, I think, never saw the kind of margin that they're seeing in their business today. Soybean bushels, in my eyes, is three times the price as they were three years ago, besides productivity gains. And our business, of course, benefits from that. So the businesses that compose FON5 are doing extremely well. So at the right time here, we're going to be able to sell them at very good prices and also the strengthening of the rail. So I think we position ourselves in a good place to be, and as of 20th of May, things are working our way. Of course, when I look at the FRE, I have a lot more certainty because I know how much I'm deploying, the funds are already raised, and with the kind of performance we have, I'm seeing support from ILPs for us to raise our private equity funds further. And on the performance fee side, there is also more uncertainties on when you're going to sell it and whatever. But until as of today, things look good for the year. So I hope I answered your question as well.
spk08: Yes, it's very helpful, Alex and Marco. Thank you very much.
spk04: Our next question comes from Robert Lee with KBW. Your line is open.
spk02: Good morning. Thank you very much. Thanks for taking my questions. A lot of them have been asked and answered, but one or two that I had is I'm just curious, and this relates to realizations, but clearly there's a growing secondary market appetite for participation. And I know in the past you had kind of discussed that there had been some parties that maybe were interested in some type of strict transaction. that could have potential, I guess, if accelerating some realizations. I mean, can you maybe update us if those kind of discussions are ongoing or if maybe it's just not the right time to consider something like that? Just curious where that stands.
spk03: Hi, Robert. This is Alex. And thanks for the question. I think it is the right time to consider it, Colin. And the secondary market, as you know, is very, very liquid. Huge funds were raised by several very important players in that market. And I think we have great assets. I was mentioning Projective Fund 5. And definitely, it's something that we will consider. It's something that we are considering. We were approached by several of these players. They look into everything that I said. They look at the rebound in the region. They look at the strengthening of the currencies because of the commodity prices increases. You know the effects of commodity prices do have in the economies of the region. It's beneficial, it's positive. They also see the companies that we have in our private equity complex exposed to the right sectors. As I mentioned, healthcare and agribusiness, logistics, We have also in Fund5 a last mile food logistics business and of course did very well and it continues to do very well as people stay more home and order more food and etc. from home. And yes, we were approached and we will definitely consider and we are considering. And some of these, you know, the GP-led transactions in this market has been increasing more over the years. There's a I think it was, don't take me for this data here, but I think last quarter, I think we had more GP-led transactions than LP-led transactions in the secondary market. So, yes, I think we were approached. We are considering. It looks good. I think we should pursue seriously in doing something for that. And Fund 5 is a good candidate, given everything that I said. Thank you.
spk02: Actually, that's my only question. Thanks for taking the time. Thanks, Rob.
spk04: Again, to ask a question, please press star, then 1. Our next question comes from Craig Siegenthaler with CreditSuite. Your line is open.
spk06: We just wanted to circle back on corporate M&A. Um, can you remind us your appetite to acquire private markets, businesses outside of Brazil and adjacent markets? Um, and I'm thinking like Chile, Columbia, Mexico.
spk03: Yeah. Hi. Thanks, Greg. Uh, the appetite is high. Uh, I think we, um, we see these economies, uh, these are ginseng economies as you, as you call them, uh, going through very interesting moments, uh, different moments and, uh, each one of the, of these economies, but yes. diversifying some of the Brazil risk, other currencies, other natures of economies. So the answer is yes. I think we're looking into expand our product offering and expand our geographic footprint in the region. So we're looking at the same time to expand the product offering for our Brazil-centric products targeted to Brazilians in BRL, raising in BRL, investing in BRL like the REITs, Real Estate Investment Trust, like the Infrastructure Investment Trust that I mentioned, but also looking to expand throughout the region with other general partners that do manage other products or similar of ours, but in these countries that you mentioned. There are great managers in the region that are doing extremely well, and that would add, I think, extremely well to our portfolio. So the answer is yes, and I think it composes our portfolio. It diversifies country risk, diversifies currency risk. These economies by themselves, they're not very correlated with other economies of the world. That's something that we always do show to our limited partners that investing in our funds that have exposure to the countries that you mentioned, Craig, the economies of the region here is not really correlated with the US economy or European economy. So it's a good add for them. They're buying returns with very low correlation. So that actually adds to their portfolio, high Sharpe ratios, which everybody looks for, right? So having Chile, having Colombia, having other countries in the portfolio adds to that whole theme of giving them exposure to the region, not just to a country. And the region has economies that are not correlated with where most of our LPs are based, US, Europe, and Middle East and Asia. Second, we diversify currency because the currencies of these countries that you mentioned are less volatile than the BRL, which is the Brazilian currency. So there's a lot of advantages. Lastly, I think the Brazilian market is more mature and advanced in some shapes. And we see going into these countries that we have, I'm generalizing now, assets at more attractive valuations. because the industries in these economies have not performed as well or competed or added sophistication to these industries as we see it in Brazil. So there's a great opportunity that through these local managers, you can find businesses of very, very attractive valuations that can add to the whole to a Latin American consolidation. So it's pretty positive. We already have very interesting exposure to these economies. I'll give you one example. Private equity fund five, it should be 60, 65 Brazil and 35, 40% other countries in South America, which basically shows the math of the GDP composition. If you add the GDP of all of the countries in the region, including Mexico, Brazil is around 40% of the region's GDP. South America, around 60% of the GDP. So I'm just doing plain math here. And our fund is going to be more or less 60%, 65% exposed to Brazil. And some of these companies that I consider part of the 60% do have businesses in other Latin American countries. plus a direct exposure of 35%, 40% of the fund to these other countries. And we saw a significant plus in better returns, because we can go in at better valuations, and diversification of country risk and currency risk, and a bigger appetite from our LPs to have a regional exposure versus a country-only exposure. Thanks. Thank you, Greg.
spk04: There are no further questions. I'd like to turn the call back over to Josh Wood for any closing remarks.
spk05: Thank you, everyone, for joining us today. If you have further questions, please reach out to us at the contact information provided in our earnings presentation and on our website. We look forward to talking with you again soon, and have a great day. Thanks.
spk03: Thank you, everybody. Stay safe, and thank you very much. You may now disconnect.
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