Patria Investments Limited

Good day, and thank you for standing by. Welcome to the PATRIA third quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. I would now like to hand the conference over to your speaker today, Josh Wood, head of shareholder relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to PATRIA's third 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 third 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 factors section of our Form 20F Annual Report filed earlier this year. As a foreign private issuer, PATRIA reports financial results using international financial reporting standards or IFRS, as opposed to U.S. 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 $21.5 million in IFRS net income in Q3 21, On key non-GAAP measures for the third quarter, we generated fee-related earnings of $21.8 million and performance-related earnings of $1.5 million, resulting in distributable earnings of $22.5 million, or $0.165 per share. In alignment with our policy, we declared a dividend of $0.14 per share, payable on December 16th to shareholders of record as of December 2nd. With that, I'll now turn the call over to our Chief Executive Officer, Alex Saig.

Thank you, Josh. Good morning to you all, and thank you for joining us today. We now find ourselves nearing the end of 2021, Patria's first year as a public company, and it has been a privilege getting to know many of our shareholders in these past months. I want to reiterate upfront that we greatly value your support, and I think our results continue to demonstrate that we are delivering on the targets we've put forward for this year, and positioning ourselves well for strong growth in 2022. We remain on track for last quarter's guidance of at least $75 million of fee-related earnings and a dollar per share of distributable earnings, which would generate a 5 percent dividend yield for an investor in our IPO. Year-to-date, we have generated 83 cents of distributable earnings per share, of it 17 cents of distributable earnings per share in this last quarter, in the third quarter, meaning we just need to deliver the same results from third quarter again in the fourth quarter to reach our targets. This outcome would represent feed-related earnings growth of 30 percent plus and distributable earnings growth of more than 140 percent compared to 2020 when adjusting the prior year for comparable compensation structure. And our 2021 results are purely organic, without a contribution of any acquisition, but diluted for the cash raised in our IPO. We see that momentum continuing in 2022, where we expect, based on current factors, to see our fee-related earnings increase by more than 50% compared to 2021, including Moneda's fee-related earnings to Patriot's stand-alone. Our flagship strategy timelines have accelerated, with our next-generation private equity fund in the market as we speak, putting us roughly one year ahead of schedule. Our strong investment performance is the backbone of everything we do, driving loyalty and larger capital flows allocations from our limited partners, as well as a substantial performance fee of $14 million dollars which will benefit shareholders as distributable earnings in future periods. As notably in the third quarter, we took a major first step in our M&A growth strategy with the announcement of our combination with Moneda Asset Management, which will be further additive to earnings in 2022, as it provides the foundation for a leading alternative credit platform in the region. For our flagship private equity and infrastructure strategies, we have raised each new vintage on consistent time intervals, raising the majority of capital from sophisticated international limited partners and with the commitments denominated in U.S. dollars. We have done this through many different macro environments, and we don't believe now it's somehow special or different. Supported by a track record of strong investment performance, we have established trust with our investors as a partner of choice to access private markets in the region. Since they tend to invest in private markets around the globe, they understand that times of volatility are often when firms like Patra can do their best work, and they recognize our ability to be opportunistic during market dislocations through deep and localized industry knowledge. For those reasons, we have been able to raise new vintages of long-term, locked-up capital every three to four years, while also scaling the capital commitments at an impressive rate. We are almost fully committed on our current generation private equity fund, and we are now back in the market, raising the next vintage one year ahead of schedule. We expect the first closing to be around the end of the year, or perhaps just after, depending on logistics for some of our ILPs, and we continue to see demand to scale this fund up by 50%. The two latest vintage funds, Private Active Fund 6 and Private Active Fund 5, are performing extraordinarily well, with Private Active Fund 5 net IIRs of 29%, and Private Active Fund 6 net IIRs in U.S. dollars of 27%, and we are seeing great progress within the portfolio. For example, our heavy deployment in the first half of 2021 included a commitment to our cybersecurity thesis in Private Active Fund 6. In the third quarter, we announced the acquisition of Nail Secure and ProTails to consolidate the largest information security platform in Latin America with operations in five countries. This platform can continue to grow through additional consolidation, and this is a classic example of our distinctive approach to building market leaders in the region. Likewise, in the infrastructure space, our current generation fund continues to progress nicely, addressing an opportunity set in the region that only continues to grow. With a $2 billion fund, we are analyzing a pipeline for the next 24 months of around $50 billion of potential equity checks for transactions and CapEx. This figure includes actionable opportunities in sectors like power, logistics, telecom, and others in Colombia, Chile, Brazil, and other countries in the region. In our Infrastructure Fund 4 portfolio, we have seen two fantastic stories develop just in the last month. The first was in the telecom sector. Just two weeks ago, Brazil held its 5G spectrum auction. Our telecom platform, Winity, placed the winning bid for the 700 megahertz band for national coverage. As a result of this winning bid, our company will build more than 5,000 telecom towers in the coming years, all pre-contracted, serving the largest telecom operators and other corporate customers in Brazil. This will drive significant additional deployment of capital from our Infrastructure Fund 4 at attractive returns. The second was in the power sector. Back in late October, Essentia Energy, a renewable energy portfolio focused on solar and wind power generation, announced the beginning of operations at the Sol do Sertão solar panel plant in the northeast of Brazil. Developed from scratch by PATRIA, Essentia has now delivered the second largest solar complex in Brazil and third largest in Latin America with a capacity of 475 megawatts. This plant, now fully operational, serves an estimated 580,000 households and saves the emissions of about 465,000 tons of CO2 per year. We are particularly proud of this project, and I think it underscores Patrick's commitment to making ESG not just a block that we check, but an active and purposeful effort throughout our portfolio. Addressing the growing desire from global investors for dedicated allocations to ESG themes and the global energy transition, we also announced last quarter that we are currently raising a renewable energy fund to complement our flagship infrastructure fund. We are targeting to raise the renewables fund before coming back to market with flagship infrastructure fund next year. In our country-specific strategies, we believe the financial deepening in the region continues to be a substantial long-term opportunity, and these locally-focused products continue to be important to our growth strategy. Currently, they still account for less than 10% of our assets under management and fee revenues, And so, for better or worse, this bucket is not yet a big needle mover for our P&L. The more recent developments in local interest rate environments are particularly supportive of credit strategies. And accordingly, we are seeing the immediate fundraising opportunities shifting in that direction. In the coming quarters, we expect to raise capital for our second middle market credit fund, as we finish investing the $200 million raised for the first fund, where performance has been excellent with no defaults and improving credit ratings in several portfolio companies. We are also targeting to raise capital for our first infrastructure credit product, where there is significant demand for capital given the regional momentum in infrastructure and investment activity. At this point, we have established anchor investors for both products, which should be primary contributors to country-specific fundraising in 2022. There are multiple work streams in motion within this area, and we will keep you posted on progress as it becomes more material. Our big news from the third quarter is, of course, Moneda, and we are well on track to close the transaction before end of the year, as we previously noticed. We hope the information we shared with you at the announcement in September was helpful, but let me reiterate our big picture view on this strategic combination. Moneda has established an outstanding brand and track record across both credit and equities over the last few decades. And first and foremost, they are an attractive addition to our platform based solely on their existing business today. But the vision here is not just bolting on an adjacent business. This is about complementary expertise that enables us to build much bigger things together. With global investors reducing their number of GP relationships, Patra's goal is to stand alone as the premier comprehensive provider for alternatives in Latin America. In that regard, credit was the most competing white space in our platform. Moneda manages the largest high-yield credit fund in the region, which is 10 times the size of the next largest competitor, and has delivered leading returns with more than 350 basis points of outperformance against the benchmark since inception. In their team, we are gaining a level of truly regional expertise, not just Brazil, that would be difficult for us to build organically. Immediately out of the gates, we see strong synergies with our global clients who are interested in credit allocations in the region, where they can find yields that remain absent in developed markets around the world. This translates to incremental wallet share from our existing clients and incremental growth channels that would have been difficult for Moneda to access on their own. Bigger picture. you should expect to see product development on the private credit front. Moneda's current private credit portfolio of roughly $450 million adds to the previously mentioned 200 million PATRIA managers already. And together, we expect to develop distinct private credit offerings with drawdown structures similar to our current flagship products. As I noted, We are progressing with plans for middle market credit and infra-credit products in our country-specific strategies. Given the steep growth trajectory of private credit across the globe, we believe we can attract significant credit allocations from international investors over the coming years as well. Beyond Moneda, we continue to be active in pursuing other inorganic opportunities, and there is more activity on that horizon. This could mean bolting on high demand and complementary sub-strategies or acquiring local talent in different regional geographies. In any case, our efforts will always be patient and diligent to ensure that any new partners will be a fit for our culture and highly aligned with our vision for what PATRA has become. With that, I'll now turn the call over to Marco to walk you through the numbers. Marco.

Thank you, Alex, and good morning to everyone on the call. Our financial results for the quarter reflect our continued progress toward our prior guidance for the full year 2021 and demonstrate the top-line impact from the heavy deployment we saw in the first half of the year. Fee-related earnings were $21.8 million in the third quarter 21, up 24% from $17.6 million in the second quarter. Fee revenue of $37.4 million rose 16% from last quarter as we added nearly a billion dollars net of our fee earnings AUM through deployment. Our FRE margin for the Q3 was 58% up from 55% in Q2 due to the jump in revenue, putting us on pace for a margin in the high 50s range for the full year. Compared to pre-Q20, fee-related earnings were actually similar as you see reported in our P&L, but that is not comparable due to the post-IPO adjustments to the compensation structure. Adjusting the prior year quarter or an apples-to-apples compensation structure, fee-related earnings were up 25% compared to third quarter 20. Fee earnings AUM of $9.2 billion is up 11% from $8.3 billion last quarter and up 22% from $7.5 billion one year ago. we landed slightly below the range of $9.4 to $9.6 billion we suggested last quarter, with private equity and infrastructure as expected, but a slightly lower outcome in our country-specific strategies, where we have lower visibility due to, in part, to FX and local equity markets' volatility. Regardless, we continue to deliver attractive year-over-year growth in our management fee basis, which is the critical driver for the organic FRE growth path. On the cost side, pre-Q21 personal expenses of $12.1 million were up from $10.1 million in the prior quarter, with about half of this increase being run rate and the other half relating to some non-recurring adjustments. We therefore expect the fourth quarter personal expenses to fall between the Q2 and Q3 levels. Admin expenses of $3 million in the third quarter 21 were down from 3.8 in Q2 to some non-recurring items that elevated the prior quarter. On year-to-date basis, admin expenses are running about 5% higher than in 2020. We had 1.5 million of incremental performance-related earnings related to private equity fund 3, which aligns with our comments last quarter that we could see some minor adjustments in subsequent quarters as the steps of the OLR sale are completed and other escrows are received. At this point, We do not expect significant additional performance-related earnings in 2021, and we expect Private Equity Fund 5 to be the major driver in 2022. Net accrued performance fees were $314 million as of September 30, down slightly from $325 million last quarter, driven primarily by currency fluctuation in the quarter and local equity capital markets volatility, pressuring some public positions and comps. Year-to-date, the net accrual is up 14% on an absolute basis and up 35% when accounting for the amounts that we realize in Q2. The third quarter was mostly uneventful in terms of new reported fundraising, deployment, and realization activity. But you should certainly not mistake that for a lack of activity on the fundraising trail or in the portfolio and our pipelines. As a reminder, we report our deployment figures based on incremental capital that is deployed or reserved. In other words, binding commitments to a portfolio company or investment thesis since that is typically what drives fee earnings AUM and revenue in our flagship funds. In the first half of the year, our deployment pace was well above average at nearly 1.8 billion, higher in six months than in all 2020. In the third quarter, what you are seeing is that capital really flowing into the business development plan and M&A within the portfolio. As Alex noted, a few great examples. We still have $1.4 billion of pending fee earnings AUM eligible to earn management fees once deployed, which will be replenished by our ongoing fundraising efforts. This $1.4 billion It is spread across a few funds, but most notably, we do expect one additional allocation from private equity fund six before transitioning to the next vintage fund. Fundraising for our next vintage private equity fund and first dedicated renewable energy fund is ongoing, as Alex covered in his remarks, and we expect these funds will begin deploying capital in 2022 alongside the remaining commitments in Infrastructure Fund 4. As we approach the end of 2021 and we now have higher visibility on our full-year earnings, we know that attention has naturally turned to 2022 expectations. Our intention will be to provide you with a helpful outlook once we have a good ability to forecast and then refine with a sharper point as the year progresses, much like we've done this year. Now, with our initial 2022 annual planning process complete, we are in a much better position to do that on fee-related earnings. Overall, As Alex mentioned earlier, we expect total FRE to increase by more than 50% in 2022, driven by solid double-digit organic growth as we invest larger flagship funds and launch adjacent strategies, such as renewable energy and the addition of Moneda's platform. We expect the FRE margin for the organic business to increase slightly in 2022, while Moneda's margin is expected to be closer to 40%. Combined, we expect an FRA margin in the low 50% range. On performance fees, the 2022 outcome will really depend on the harvesting progress for private equity fund size, which has net accrued performance fee of $217 million as of September 30th. We've said that you should think about the Sunspide realization arc as extending mainly over 22, 23, and 24, and that remains the case. While we expect to generate some portion of that in 2022, exit timing is very hard to project, and it only makes sense for us to provide distinct guidance on this when we have very clear line of sight. Altogether, this outlook, we believe, frames a strong growth profile for the coming year. And keep in mind that our dividend policy shares 85% of our distributable earnings with our shareholders. In 2021, the outlook for DE of $1 per share means $0.85 to the shareholder, which, as Alex noted, is a 5% yield on our IPO share price, nearly four times the current yield on an SAP 500 index fund. If we grow FRE by more than 50% next year, most of that incremental value is being delivered directly to shareholders each quarter. And even thinking conservatively, we believe our growth and dividend profile imply an attractive current valuation for our shares today. Across our entire business, from executive leadership to fundraising, investment professionals, to value creation teams, we are focused on execution. And we are aligned with building value for all of our stakeholders. We thank you for your time, and we'll now open the line for questions.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Again, if you would like to ask a question, press star 1. Our first question comes from Craig Siegenthaler with Bank of America. Your line is open.

Good morning, Alex, Marco. Hope you're both doing well.

Hey, Greg, how are you? Good morning.

Good morning. Hi, Greg. This is Alex here.

I hope you are well as well. Thank you. And thanks for all the guidance and targets for 2022. That will be helpful. But my first question is on the M&A Outlook after MONATA. So how do you quantify deal capacity after Moneda? And also, do you have an appetite to pursue additional transactions after this one?

Well, this is Alex again, and thanks for the question. The answer is yes, we still have appetite. We did consume around $100 million from the $300 million that we raised with the primary issuance of shares in the IPO in the Moneda deal, or we will consume because we're going to close the deal by year end, hopefully. Everything looks completely on track, just a parenthesis here. With that, we have $200 million still in cash from the issuance of primary shares at the IPO to direct for additional acquisitions, and we want to do that. If we do translate that $200 million of cash, if we buy something also using stock, 50% cash, 50% stock, we can still have another $400 million there of powder to buy other asset managers. Why the 50-50? Because I think it's important as we are a people-driven business to give the new partners of ours shares and keep them locked up for a while to align interests. So if we divide that by the same multiple that we bought Moneda, we have another $40 million of earnings to buy in several different geographies and products. We did fill, I think, the credit space quite nicely with the Moneda acquisition as mentioned earlier and today, and I think there we can really continue to grow their private credit with ours and their listed credit, high yields, which is a product that a lot of investors around the world are seeking for given the yields in the region. We also acquired a very, very significant pipe portfolio with Moneda. We also had a smaller pipe strategy that can join forces and we can do more on that front, raising also closed-end kind of structures And I think here on the real estate side, Craig, that now I think we're going to try to focus to do other acquisitions to grow our real estate portfolio. Just to remind everyone in the region that real estate is inflation plus, right? So when you buy a real estate product and when you rent out whatever, all the contracts in the region are adjusted by inflation. And with inflation picking up around the globe, and in the region as well, investors are looking for these kind of products. Now REITs, Real Estate Investment Trusts, where the share of that REIT is whatever the yield that you get, plus the inflation as the rental contracts are all adjusted by inflation. So that's another product that we want to go into more deeply and an acquisition there, or acquisitions there, I think makes sense. Also, there are several other holes here in our menu that we would like to feel. For example, within the private equity vertical, we do have a buyout consolidation private equity fund, which we call our flagship private equity strategy. I think there's a space for us to launch a core private equity strategy in a listed format, which is a permanent capital format. I think there's also space for us to launch or do a small acquisition in the private equity which we now call growth equity part of the business. Also there, I think there's a lot of interest from international investors in investing in a product in the growth equity space. So a lot of things to do, very exciting in buying into real estate, buying into private equity, different strategies, buying into different geographies, as we did with Moneda, get more exposed to Chile. We would like to get more exposed to Colombia and Mexico at due time. I think in Colombia, I think it's the right time. In Mexico, we have to follow through the leadership there and what the leadership in Mexico, I mean the president, is actually directing Mexico too. But nevertheless, Mexico is an economy so much linked to the U.S., There are very interesting theses like nearshoring of production, production that is done all over the world now, being driven to Mexico to be closer to the US, and other theses very interesting in the infrastructure space as well. So yes, appetite continues to be high. We still have the cash from the IPO, $200 million. We normally use some stock to do these acquisitions so that our dry powder is even larger. than the $200 million or bigger than the $200 million. And we are generating so much cash, you know, that we are a cash positive and generation business that we can do these acquisitions and continue to distribute 85% of our distributable earnings as dividends. So hopefully here I answered your question. I don't know if, Marco, if you want to complement anything.

Yeah, just think about our acquisition program aiming at, you know, enhancing the product offering, expanding our geographic footprint, and binding new geographic capabilities, and improving the distribution capabilities. So Moneda brings the three of them. Following acquisitions may bring the three of them, but may not be the case as well. So as Alex alluded to, there's a lot of opportunity in infrastructure, in credit, real estate, and we will continue with this effort.

Great. Thanks for that very comprehensive response. In fact, it was so comprehensive, you actually answered my follow-up on M&A, but I do have another one here. And it's on the macroeconomic front. And listen, I know you guys could spend a while answering this, but, you know, very simply, you know, the COVID conditions are getting better in Brazil. but inflation is starting to rise. Low interest rates are generally a benefit for many private market asset classes, but how do you see higher interest rates in Brazil impacting your business, especially your ability to sell to local investors where you're competing with fixed income?

No, I think a great question here, and we have, of course, been – asked by other investors the same question or a similar kind of question. Yes, I think the interest rates are going up in the region because inflation is going up. But I think here it's important to say that actually the products that we offer has always been actually interbank rates linked plus a premium, of course, and inflation linked plus a premium. I mentioned the real estate products. Now, all of our real estate products, the rental contracts are adjusted by inflation. So when we sell the product here in Brazil, we sell a REIT, and normally the way that we actually market it is inflation plus 6%, inflation plus 8%. That's how you actually sell the shares of a REIT in Brazil, not only our REIT. So investors that are worried with inflation, they look at a real estate investment trust actually as a protective investment. Also, are credit products the same? Of course, sometimes they are interbank plus a premium, interbank rates plus a premium, and the rates here are going up in order to cope with the rise of inflation. 100% of our credit products here are variable rates linked So we're not stuck to any low interest rates that we did lend money in the past and now we were caught off guard. All of our products actually are variable rates. So with the increase of the interbank rates, with the increase of inflation, so does the increase of the rates that we receive in our credit products. So they are very much sought after by investors. In the infrastructure space, the same, Greg. If you look at our infrastructure fund four, all of the investments in that fund have the revenues corrected by inflation contractually. Because we use the example here in our call today, in our earnings call today, that infrastructure won a 5G auction just a couple weeks ago. That contract is contracted by inflation. So it's X amount of reais plus inflation. So also our core infrastructure fund is the same. So all of these, why did we do this? Because inflation has been an issue in the region and because of the structural issues of the economies in the region, it will still be an issue. And the economies here are, of course, in different moments in time of their developments. So we have always protected, given our past experience, and we continue to be protected. Finally, on the private equity side, of course, we don't have revenues contracted by inflation when we go in into a healthcare company, for example, but we do go into resilient sectors, which we normally, and most of the times, we can pass on to prices inflation on our costs. All of these results and the returns that you saw, given our past funds and current funds, and even more so our past funds, They went through higher inflation environments. Our Fund 1, Fund 2, Fund 3 in private equity, for example, already delivered all three funds fully divested, 16% net IRR in US dollars, 2.3 times your money net in US dollars. And Fund 1, Fund 2, Fund 3 in private equity lived in a higher inflationary environment. At such moments, we had inflation high double digits in Brazil, for example. And we still delivered 16% net in U.S. dollars, 2.3 times net MYC in U.S. dollars for those three funds. Now we are harvesting fund four and fund five in our private equity space. So investors are actually shifting, of course, more to inflation-protected instruments like our real estate products, our credit products, our infrastructure products, And we see that locally. Now, of course, we see more demand for our credit products at the current time. And having this broader menu is part of the strategy in order to cope with this different shift in demand and continue to raise money locally in a very healthy manner. So hopefully I answered your question.

Very comprehensive. Again, thank you, guys.

Thank you. And our next question comes from Robert Lee with KBW. Your line is open.

Thanks. Good morning, everyone. Appreciate you taking the questions. I'm just kind of curious, a couple questions around the fundraising. So with the PE fund you're raising now, are you seeing any change in the LP base? Is it mostly, say, 80% re-ups and you're getting 20% new investors? Just curious about how maybe the LP base may be changing, if at all. And then on the renewable fund, could you possibly size that? Do you think that that would kind of take any demand away from the infrastructure fund when you start to raise that maybe later next year or early the year after? Or do you view them more as a complementary?

No. Thanks again, and nice talking to you, and thanks for the questions. As of your first question, we see the same LP base on institutional ILPs that are most of our ILPs in our private equity strategy today. Of course, sometimes there are little shifts here or there, and one of our ILPs is merged with another LP, and that's life, but I'm talking, you know, a minority part of our LP base. But yes, the majority are re-ups, as you mentioned, 80%. What we're trying to do, and I think we want to do it, is to expand our LP base to other regions and other types of clients. We would really enjoy having more money from ultra-high net worth individuals through the private banking. I think now distributors. We see that private equity, alternative investments in general, is becoming more and more attractive for individuals, high net worth individuals. I think there's a lot of money to be raised there. I think there's some regions in the world that we would like to increase our share of wallets. Australia, for example, that we have an amazing amount of, as you know, very large pension funds And I think our market share there is low. So I would love to bring them in to this fund. So the answer is yes. I think most of our capital for Private Active Fund 7 will come from current LPs. And the current LPs are the ones that actually do come earlier in the process. So they are the ones that actually really support us in a first closing, for example, because they already know it's a re-up. Now great returns for private equity funds five and six, fully divested private equity fund one, two, and three with the returns that I just mentioned, 16% net in U.S. dollars, 2.3 net MYC in U.S. dollars. So they're used, they know us, et cetera. So the percentage of LPs that come in the first closing are even more so current LPs. And then we try then of course to work with other LPs Now, to give you a number, I would love to have a two-thirds current LPs and a third new LPs in order to do exactly what I just mentioned, expand the base, looking to fund eight, nine, and ten. On the renewable energy front question, it might happen. I think you have a point there because some of these LPs look at the region and say, look, I'm going to expose myself to infrastructure issues. and I'm going to expose myself to renewable infrastructure, in this case, renewable energy. Might that be, look, I'm going to have an X amount of dollar checks for PATRIA and a slice for renewable and the other slice for Infrastructure Fund 5. If I would guess, I think it might happen. I think it might happen. We haven't had these conversations yet. with these LPs because we are not raising infrastructure fund five. We are focused on the infrastructure side to raise the renewable funds. But the LPs that are supporting us at least in the first closing of this renewable fund are current LPs of our infrastructure strategies. So it might happen. I think it's a good question. It's hard to circle a number. But I think you have a point there. It might one fund corrodes a little bit the demand for the other.

Thanks for the complete answer. I appreciate it. And I do have one follow-up. I mean, PE Fund 5, you know, performance has been very good, and obviously that's where you expect the next realizations. But do you see much of an opportunity to maybe even accelerate that? I mean, obviously, you know, continuation funds, GP-led secondaries have been really – growing in the industry. I'm sure you have some assets in there you maybe would like to hold even longer. Is there a possibility that you may be able to deploy some of those strategies to accelerate the return of capital realizations, but also keep the assets and fees in place?

Yes, definitely so. I think that part of the market is so exciting today. I think there's so many new things and new strategies going on. But the concept of continuing to invest in these what we call champions has always been part of our day-to-day here, our strategy. I'll give you an example. The first deal that we did was a drugstore retail chain. We bought it for $28 million. We sold it for $300 and something million. We thought that we were just geniuses. This company today is worth $5 billion. And we made 12 times our money. We said, wow, what an investment. And we could have made the company today is worth $5 billion, the same company. And it's an amazing company, number one in Brazil. in drugstore retailing, blah, blah, blah, blah, blah, and continue to grow very strongly. And I can give you other amazing examples from our private equity fund, from our infrastructure fund, one or two champions per fund that I would love to continue investing in these companies, given that they continue to deliver 20% plus returns per year. And to do that for 20 years, for 30 years, this drugstore retail company that I mentioned, we divested in in the late 90s, so whatever, 20-something years ago, and growing 20% per year. That's something rare to find, and we have other companies in the diagnostic field, in the energy field, that we could have continued to invest. So yes, we are looking to set up a continuation of driven vehicles listed We are looking at strategies that you can list these funds in exchanges like in Brazil, exchanges like in London that have a pocket for these kinds of funds, as you know. And also, we can continue to drive a lot of value. And investors are really supporting us on that because now finding a company that we foresee that will continue to grow 20% per year for the next five to 10 years, we have demand, and we already de-risked that, right? It's a company that probably we have already owned for whatever, six to eight years, so we know the management, we actually placed the management there, we de-risked the assets, we know exactly what to do, and we did that with, lately, with a health club chain called SmartFits, it was part of Fund 3, now is part of fund five plus a group of co-investors uh and it's working and it's working extremely well so the answer is definitely yes and um when you have when you know when you're managing a fund right that's my view at least uh which is the case of private equity fund five but uh 28 returns in us dollars net and a 2.1 moic net in us dollars you have to sell the assets or you have to go for a continuation fund for some of the assets, but the investors, the LPs of Fund 5, two times your money in dollars, 28% net IRN dollars, it's time to go. So we are looking very, very actively to divestments for all of our companies in Private Active Fund 5, which is a case that all of them are mature. It's interesting, or They're ripe, not material. I think it's not the right expression. I think they're ripe to be sold given the returns that I just mentioned. Thank you.

Great. Thank you for the full answer. To Alex, there are also opportunities to fold some of these investments that have been developed under the development funds into permanent capital structures aiming at offering to local investors field products. Well, that's something that we saw happening in other parts of the globe that also are opportunities that we are looking at, too.

Great. Thank you so much. Appreciate it.

Thank you. Our next question comes from Marcella Telles with Credit Suites. Your line is open.

Hi, Alex. Hi, Marco. Thanks for the time, and congratulations on the results. I have two questions. The first one, I mean, think of 2022. You know, how do you see, you know, the level of capital deployment next year? You know, of course, you had a remarkable performance this year, $1.8 billion, you know, in deployed capital. How should you think about 2022? You think, you know, it should be around that $2 billion that historically have been, or Given that perhaps valuations in Brazil have come down a lot, do you see room to deploy capital even faster than that? And my other question is kind of the flip side of that argument in terms of the realizations. Of course, there was a big derating in the Brazilian market. Currently, valuations have come down quite a lot. does that impact, and I know you just mentioned, you know, your willingness to divest, you know, particularly, I think, the Fund 5. How do you think that environment, you know, impacts your ability to divest next year? Maybe it would be worth maybe to wait a little bit, you know, maybe after, you know, elections in Brazil and see, you know, maybe get better valuations in 2023, hopefully. So how should we square, you know, these two things together? that are in some way kind of opposite at this point in time in the Brazilian cycle.

Thank you. Nice talking to you. Thanks for the question. On the investment side, I think the first part of your question, we continue to see a very interesting environment to continue investing. Much more so, I think, because we know the size that we have today and plus the The opportunity sets, I think, that is going on in the market. We continue to be extremely positive on that front, and we continue to see kind of the same level of activity that we had this year for next year. On the infrastructure side, it's amazing. We mentioned during our earnings call, we run a $2 billion fund. We want to raise another another infrastructure fund sometime in 2023, a year ahead of schedule, late 2022, 2023. But there are like $40, $50, $60 billion of concessions going on just in Brazil. And there's not a lot of capital chasing these concessions. And our interaction with the regulatory bodies in Brazil and the decision makers in Brazil, I mean the Minister of Infrastructure, the Minister of Telecom and Energy, is very, very close. talking to them, because we became a very important bidder in these auctions. So I'm very excited on that front. I think there's so much to do. And again, a $2 billion fund, and just in Brazil, $40, $50, $60 billion of concessions, you can really choose the best assets to go after. On the private exit side, I think that we do focus on... Three or four sectors, as you know, healthcare being number one, and then agriculture and food and beverage, and then business services, logistics, which logistics became kind of a business service today, given the digitalization of the world and the deliveries. And we continue to be extremely excited. I think there's so much to do there. On the healthcare front, I cannot say more, right? Healthcare is booming, right? And we had more than 60% of our investments in healthcare. And our companies, it was really, nobody planned for COVID, but our companies really benefited from this situation because more usage of distribution of drugs, more usage of the whole drug consumption really increased in the last years, as you know. and we are extremely excited there and really excited to continue to do investments there. On the agribusiness, you know what happened with the commodity prices for agriculture. So now we have companies in that sector, exposed to that sector, which are doing extremely well. And same thing with logistics. A lot of our companies do last mile logistics and cold logistics and did very well also during these last these last years. On the divestment front, so again, just to summarize, yes, I see the same kind of volume of investments that we did this year for next year. I don't see us decreasing that volume. I see us same or increasing, actually. On the divestment side, of course, we're going to be as cautious as possible, but when you look at the portfolio, again, on the private equity side, you see healthcare. On the private equity side, you see agri We have a lot of interest from strategics for our assets. We might not use the capital markets because the capital markets are choppy, but we see a lot of strategic interest for the assets. We are receiving offers for our assets as we speak because we are trying to sell them. On the infrastructure side, of course, as we de-risk the assets, There's a lot of interest from strategics and a lot of interest also from Brazilian investors or Colombian or Chilean wanting to be exposed to a very good yield-generating product. After you de-risk that infrastructure, then it becomes fully mature and operational. It becomes kind of a fixed-income product with an equity upside embedded into it, an electricity transmission line. a power generation, even a toll road, after the big capex is done, which is normally in the beginning of the concession, that asset becomes a new asset, and you know that investors are looking for yields, and these contracts, as I mentioned, are inflation-corrected, so it's inflation-plus, which is, again, we see the demand from investors increasing, And in addition to do recaps in our infrastructure because we see the demand for credit. So even if we don't want to sell the equity, after we de-risk the asset, we do a recap. We can raise a new bond at a lower rate because we de-risked the assets. We pay the project finance debt and we actually deliver and we do then redeem that cash to investors. as a dividend. So it's extremely exciting on the divestment side as well. Of course, the capital markets get very choppy given everything that is going on in the region, not only in Brazil. But normally, if you look at our divestments, 70% plus close to 80% of our divestments work with strategics. And strategically, they continue to be bullish on the region, to be honest, in the sector that I mentioned to you. So, yeah, I think the same volume on the investment side, and we see that we'll be able to divest also in due time, of course. I think it's more of a question of the portfolio company being ready to be sold because we maxed out the synergies of a consolidation process, or we de-risked the asset because we finished constructing it and it's now fully operational. So that's more the driver, actually, than interest from strategics that we continue to see as they were in the past. Thank you.

One addition, Marcelo, that I would encourage you to pay attention to is the underlying quality of the portfolio. Not only when you look to to the different possibilities of divestment. As Alex noted, the return of Private Equity Fund 5, which is a 2015 vintage, is 29%. Private Equity 6 is 27%. Infrastructure 4 is now yielding 25%. So I think what is key here is we will always be paying a lot of attention to the timing of divestment, but the great thing is that the underlying assets are great, so when the right timing comes, we will be in a very good positioning to divest. I just wanted to bring this up. Thank you.

Extremely clear. Just two follow-ups, if I may. Number one, regarding the the fundraising for, you know, for the country-specific strategies. You think like a billion dollars a year, you know, is still, let's say, a good, you know, base case scenario. And secondly, you know, look at your guidance for, you know, 2022, you know, the FRA growth more than 50%. How should we think about Moneda, you know, standalone business? You know, should we expect like, you know, perhaps like double-digit growth enough for Moneda in 2022? How should I think about that? Thank you.

Well, on the first part of the question, I think you're right on there. I think organically, I think that's a number that you can work on. We plan to do acquisitions in the local market as well, as mentioned earlier. But yes, organically, I think that's the kind of AUM growth that I would expect from the team here, a billion dollars that you mentioned, right? On the other front, we continue to see very strong growth for Moneda and ourselves. It's getting harder to actually break down which to be honest, as we are really merging the two businesses and consolidating the back office and the fund administration side. But I think we can definitely, if you do the math here, I think over 50% growth from where we landed, where we are landing, I'm sorry, in 2021. It is a double-digit growth, a high double-digit growth for both companies, right? Marco, if you want to add anything here, what's your view?

Yeah, on the moneda side, well, the whole dynamics with the higher interest rate in the region poses a favorable, you know, setup for the high-yield dollar-denominated funds and the local currency-denominated funds. So I'm very positive with the possibilities there. It's still early to say, as we are, you know, we're closing the transaction in the upcoming weeks, and... There's a lot of work to do there. But as Alex noted, there's also some opportunities on the cost side and the tax side that would help us out to reach the double digits. So I can see a double digits coming in. Still early to say where we're gonna land at this point. We'll certainly provide better guidance over the following quarter.

And I think just as a note here, given that the deal is not yet approved by the regulatory bodies, we have limited capacity of talking to Moneta. The antitrust bodies, they have to approve the deal. And before doing that, we cannot and we are not in full contact to go deep into the numbers of Moneda. So just as a caveat, which is a very important caveat, right? As you know, it's actually natural of every deal, right? So we have not gone into any discussions with Moneda in a deeper manner, given what I said. However, we see on their side demand for their products, as Marco just explained, and we already see on our side from our investors demand for credit-related products. But as we get the approvals, and they should come, I think there's nothing in the horizon that says that the regulatory body should not approve this deal. On the contrary, then we're going to be able to have more in-depth conversations with the guys from Moneda. Isn't that correct, Marco?

Right, we're on the way for the closing. There are certain approvals that have been granted. There are certain preceding conditions that are still pending, but we're pretty much very positive that we're walking solidly to the closing in the upcoming weeks. Thank you.

Thank you. Our next question comes from Gil Hermé. Greenspan with JP Morgan. Your line is open.

Hi, Alex, Mark, Josh. Thank you for organizing the call. Two quick ones on our side. We saw the average management fee rate in the quarter is slightly going up. It seems to be related to partially mix on the segments, but also if we recap correctly, for some funds, and specifically I think Infra 4, the last one you raised, the management fee goes up once you deploy. And then my question is actually looking forward, do you still have $1.4 billion to be deployed if we should expect not only fee earning AUM to grow, but also management fees to go up as a result of this different pricing schedule? And then the second one is just to confirm the general terms of the new PE fund being raised. Again, if we recap correctly, the latest one, the pricing was only over-deployed and it was a 2% rate if this new PE followed the same rule. Thank you.

I can get that one, and thank you for the question. So, it's a very simple answer to the trending up of the fees, and it's specific on the infrastructure fund. As we deploy capital, there's a component of the fee that kicks up, and as we strongly deploy over the quarters, that is building up the mix upward. It's just the nature of the fee setup of the infrastructure fund. As for the private equity, we expect to have precisely the same dynamics. We feel, and just by the way, I think I mentioned that before in previous quarters, but we have a very positive supply-demand dynamic to our funds that enable us to continue to sustain the base of fees that we have on the private equity, both on the infrastructure, too.

Yeah, and just to be clear here, Guilherme, 2 and 20 for private equity, and we just charge when we commit to deploy the capital.

Okay, guys, super clear. Just one follow-up. The $1.4 billion is still to be deployed. What is the breakdown between the infra and private equity?

It's across several family of funds. There's... A big piece that is on private equity and another big piece that is infrastructure, but it adds up to other products as well.

Yeah, I think from my math here, I think 70%, 80% is private equity and infrastructure, right?

Okay, guys. Perfect. Thank you.

Thank you very much, Lilian.

Thank you. And I'm showing no further questions. I'd like to turn the call back to Aled Saig for closing comments.

Well, thank you very much again for your support. I think we're extremely proud of my team. I am extremely proud of my team. I think I can say also from the board, Olimpio and Otavio, now very proud of what we've been able to accomplish. getting out of the gate as a first-year public company and managing to deliver what we expected. And we talked to most of you during the IPO process of $1 per share for 2021. Looking into 2022 with fee-related earnings expected to grow by at least 50% with all the fundraising efforts that we mentioned to you guys. which would then push us into a good 2023 as well. In addition, we have the $200 million of cash still left from the primary issuance of shares in the IPO to do acquisitions. Again, as I mentioned, if we buy $200 million and then another $200 million of sellers financing, whatever, no, we have $400 million still dry powder the way that I see it, which is at the multiples that we did acquire Moneda, another $35, $40 million of fee-related earnings to add to the numbers that I just said. Then on the performance fee-related earnings, great performance from our funds, which was already mentioned, and Private Active Fund 5 now ripe for us to harvest the performance fees as we did for Private Active Fund 3 in 2021. Also, then broadening a little bit the view on the strategic side, I think we've been able to accomplish also what we wanted to do and what we actually conveyed and talked to you guys over this year, which is expand our geographic footprint, expand our product offering. Moneda fits exactly that recipe. And being exposed to different countries, different currencies, different products gives me, as the CEO of this company, more presentability, more predictability looking into the future of growth, but even more predictable growth than we have. We already have a very solid predictable growth on the fee-earning side, and with these new products, credit-related products, even more so from Moneda. So we want to continue to expand our business, as mentioned, countries like Colombia and Mexico. So very, very excited. extremely pleased with the team. I'd like to now thank the team that's probably listening here with you guys today, and thank you for your support. All of our Pax investors, great talking to you. If it was not for your guys' support, we wouldn't be here. I think, of course, I'm probably going to talk to most of you in the coming days or weeks, but if there's any of you that I won't be able to talk to for some reason or another, I would like to wish you Great happy holidays and all the best for end of 21 into 2022. All of you be well, be safe. Thank God we are getting out of this amazing and crazy pandemic, and hopefully 2022 on the healthcare side is going to be a much better year than 21 and 2020. So thank you very much again, and that's it for today.

This concludes today's conference call. Thank you for participating. You may now disconnect.