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spk06: Good day and thank you for standing by. Welcome to the PATRIA fourth quarter and full year 2021 earnings conference call. At this time, all participants are in a listen-only 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Josh Wood, Head of Shareholder Relations. Please go ahead.
spk01: Thank you. Good morning, everyone, and welcome to PATRIA's fourth quarter 2021 earnings call. Joining 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 results for the fourth quarter and full year, 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 latest Form 20th Annual Report, with our 2021 filing to be completed in the coming weeks. Also note that no statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any PATRIA fund. 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 fee-related earnings of $29.3 million in 4Q21 and $86 million for the full year. Including performance-related earnings of $58 million, distributable earnings for the full year 2021 were $141.3 million, or $1.02 per share, in line with our guidance. Distributable earnings for the fourth quarter were $27.7 million, or $0.188 per share, and we declared a dividend of $0.16 per share, payable on March 16th, to shareholders of record as of March 2nd. bringing our full-year 2021 dividends to 86.9 cents per share. Note that PATRIA's combination with Moneda Asset Management closed on December 1st, 2021, and our P&L reflects the proportional impact from Moneda only for the month of December. Marco will provide more detail on this in his commentary. Our reporting for total AUM and fee-earning AUM reflects the year-end levels for Moneda, and we have enhanced our reporting on these metrics provide a breakout along asset class lines. With that, I'll now turn the call over to our Chief Executive Officer, Alex Tsai.
spk11: Thank you, Josh, and good morning, everyone. We hope that you are all well and safe, and it's great to be here with you again today. Just a few weeks ago, Patris celebrated the one-year anniversary of our IPO on NASDAQ, and it has been an incredible year of growth for our firm. Our investment platform is significantly larger and more diverse than it was a year ago. Our earnings have grown impressively, which of course accrues to our shareholders. And we have also grown in maturity as a firm, adding new talent in key areas and making significant advances in our corporate governance as we navigate this journey as a public company. I am honored with the privilege of leading such a dedicated group of people and excited for what we can accomplish moving forward. Just to put a finer point on what we have accomplished in this first year. Our 2021 fee revenue grew by 27% year over year, driven by a record pace of deployment with more than $2.5 billion deployed from our drawdown fund. We delivered $86 million of fee-related earnings in 2021, which represents year-over-year growth of more than 50% on a comparative basis. With continued value creation across the portfolio, our net accrued performance fees increased by $348 million, up 26% from one year ago even after realizing $58 million of performance fees during the year. As we guided you last quarter, we delivered just over a dollar per share of distributable earnings, of which 85% is distributed to our shareholders. This equates to a yield of 5% on our IPO price, which we believe is among the best yields in our sector for 2021, and it's four times the dividend yield on the SAP 500. Finally, with platform expansion as a major goal, we completed our first M&A transaction with Moneda Asset Management, which brings us a leading regional credit platform and adds critical expertise in Penn Latam and Chilean equities. We also recently announced an agreement to partner with Camarupim T&P in the launch of our growth exit strategy. Listen to our commentary over the course of the year. You have heard us to talk a lot about the inherent resiliency of the business model and how it allows us to thrive in times of volatility, especially investing in a region like Latin America. These results and metrics for 2021 are a perfect representation of that. The ability to grow our revenue earnings at a high rate over the last year underscores an important point, which is true for our entire sector. Asset managers with long-term capital can do some of their best work in times of market dislocation. We believe these are good times to deploy capital, and for PATRIA, deployment translates directly to management fee growth. If the environment is flipped to the other end of the spectrum, and it's a better time to sell than to buy, you may see deployment pace slow, but portfolio realizations should then also likely rise, generating more realizations for our LPs and higher realized performance fees for our shareholders. That structural balance in our revenue streams allow us to create value for our shareholders through the peaks and troughs of economic cycles and everywhere in between. Despite the headlines and equity market volatility worldwide, the major economies in Latin America held up well in 2021, as well as in early 2022. Higher asset prices reflect the receding pandemic together with constructive fiscal and monetary developments. On the health front, vaccination rates in the region now surpass much of the world. While in the fiscal area, there was a sharp reduction of budget imbalances in key economies like Brazil. Inflation traded higher in Latin America sooner than other regions. forcing central banks into a head start on the fight by raising benchmark interest rates in the first half of last year. And now it seems we may be cresting the cycle as other regions and economies are only beginning the tightening process. We have seen local currencies appreciate in recent weeks, and it is possible we are moving towards a more benign scenario that will provide momentum to ramp up our divestment activities. Looking across the platform, our flagship private equity strategy made strides in all phases of the investment cycle in 2021. We deployed more than $1.6 billion, driving management fee growth and positioning ourselves to raise our next vintage fund well ahead of schedule. We indicated last quarter there was room for one additional allocation out of our private equity fund six, And indeed, we committed nearly $400 million in the fourth quarter into our agribusiness, cybersecurity, and grocery retail thesis. In a year that was particularly difficult for divestment, we also successfully sold our stake in Aliar, allowing us to realize $58 million in performance fees from Private Equity Fund 3. Our overall private equity portfolio continues to perform very well, with underlying investments appreciating more than a billion dollars and ending the year with a combined 266 million of net accrued performance fees. In infrastructure, our team continued to capitalize on the vast opportunity set in the region, deploying more than $750 million in 2021 from infrastructure fund four. About 300 million of that came in the fourth quarter, driven by our success in Brazil's 5G spectrum auction, where our telecom platform, Winity, won a concession to build more than 5,000 towers and distribute mobile coverage to operators through an innovative wholesale model. The strategy also saw meaningful expansion last year into toll roads and data centers, areas where we can see attractive dynamics and opportunities. The performance fee potential of the infrastructure platform is also emerging, with net accrued performance fees up to $81 million at year-end, more than three times the accrual from one year ago. With the moneda combination complete, credit becomes the third major strategy vertical in our platform with $5 billion of AUM. Already here in the new year, we are hard at work introducing Moneda's products to our global investor base. And we are excited about the potential for this asset class in the region. Moneda's largest product is LATAM High Yield Credit, which is both denominated in US dollars and also invests in US dollar denominated fixed income. The primary funds in this strategy returned 10.5% in 2021, outperforming its benchmark by more than 800 basis points and underscoring how these credit strategies can thrive in a rising rate environment. Over the 21 years since inception, the fund has outperformed its benchmark by nearly 400 basis points, a long and impressive track record for attracting global capital. To solidify Patria as the leading diversified asset manager in Latin America, our aim is to build a platform that global investors will view as a comprehensive package for allocated capital to the region. Likewise, we want to acquire or develop products to attract more local capital and leverage the long-term financial deepening playing out in our own backyard. Moneda advances that goal not only through a world-class credit platform, but also with PEN LATAM expertise in public equities and greater geographic reach and distribution capabilities in the region. With our pending acquisition of Kamado PIN, we're also laying a foundation for a growth equity vertical that will be highly complimentary to our flagship private equity strategy. These are great strides in our first year post IPO. But in my view, we're just getting started. Now, let me close with just a few words on our goals in the year ahead. We told you that we expect fee related earnings to increase by more than 50% from the $86 million we delivered in 2021. We are set up very well to meet this target. and leadership across the firm is aligned and focused on delivering their budgets. Fundraising is a top priority as we enter another major cycle. We are in the process of raising our next vintage flagship private active fund, with initial closings taking place here in the first quarter. We're also raising our first dedicated renewable energy fund, with our next flagship infrastructure fund soon to follow. Our sales team is on the road and highly engaged with our LPs across the globe to drive much higher influence than we saw in 2021, which was more of an off-cycle year. Investment performance is everything in our industry and never out of focus. Our portfolio teams are executing on our business plans to deliver the continuous stream of value creation that sustain our track record. This year, we aim to move earlier vintage funds like Private Active Fund 5, which is currently generating a 27% net IRR in U.S. dollars, further into a Harvard-y phase and into a position to monetize their performance fees accruals. We will continue to pursue strategic M&A opportunities to further expand and diversify our platform. We see interesting opportunities from both an asset class and geographical perspective, and we will be diligent but persistent in these efforts. As I finish here, I want to again thank our entire team for delivering great results in 2021. as well as our limited partners and, of course, our shareholders for your confidence in PATREA as a steward over your capital. Our business is built on performance and trust, and we know that we must deliver one to warrant the other. I'll now turn the call over to Martin.
spk09: Thank you, Alex, and good morning, everyone. PATREA's results for 2021 demonstrate our attractive earnings growth trajectory. And we move into 2022 with strong momentum looking forward. Fee-related earnings for the full year 2021 were $86 million, comfortably exceeding our guidance of more than $75 million. And we generated a margin of 59% for the full year F-R-E is up 21 percent from 2020 as reported, or up 52 percent when adjusting the prior year for a comparable compensation structure, a more apples-to-apples comparison. For the fourth quarter, we generated 29.3 million of fee-related earnings at a 63 percent margin compared to 20.2 million in 4Q20. We announced the closing of our combination with Moneda on December 1, and Moneda contributed $6.5 million to our fee-related earnings in that final month of the year. Adding the $58 million of performance-related earnings from earlier in the year, we generated $141.3 million of distributable earnings. up more than 150% in a comparable basis from 2020, an equivalent to $1.02 per share. Distributable earnings for 4Q21 were $27.7 million, or nearly 19 cents per share, which results in a dividend of 16 cents per share for the quarter. This brings our total 2021 dividend to nearly 87 cents per share, which is 85% of distributable earnings per share per our policy, and results in more than $120 million of earnings distributed to shareholders in our first year post-IPO. The top line is driving our earnings growth. with fee revenues up 27% in 2021 compared to the prior year. Our fourth quarter 21 management fee were $42.1 million, up 42% compared to fourth quarter 20, which further demonstrates the baseline momentum we carry into 2022. Moneda added $9.1 million of overall fee revenue in December, including the incentive fee of $4.9 million. Personal expenses for the full year 2021 were $43.7 million, with $1.2 million of that attributable to Moneda in December. That compares to $26.8 million as reported for 2020, but adjusted for comparable compensation structure and excluding the moneda piece, our organic compensation grew at a rate about 3% year over year. There is some effect from local currency devaluation there, and we would expect personal expenses on an organic basis to grow at a higher rate, closer to 10% in 2022. plus the addition with moneda. Administrative expenses for full year 2021 were $14.1 million, with $1.1 million related to moneda. Excluding the moneda portion, admin expenses were down 11% from 2020, much of which can be attributed to a lower travel-related cost in the pandemic environment. and also the impact of local currency depreciation. We would expect admin expenses to rise as more normalized travel agendas resume, which all things considered, we hope happens in 2022. Net accrued performance fees ended the year at $348 million, up 11% from last quarter, driven mostly by appreciation in the infrastructure fund three, a 2014 vintage fund, which now has net accrual of $75 million as it moves further into carry. The balance is up 26% compared to one year ago. And accounting for the $58 million we realized from private equity fund three during the year, the overall net accrual grew by 47% during 2021. Our latest funds continue to perform very well, led by Private Equity Fund 5 with a net IRR of 27% as it moves into the harvesting phase. While they are earlier in the life cycle, Private Equity Fund 6 and Infrastructure Fund 4 are generating 21 and 34% IRRs respectively. We feel great about the position of our portfolio and ability to generate larger amounts of realized performance fees as these funds continue to mature. Turning to AUM, total AUM of 23.8 billion at the end is up 65% from the end of 2020. including the addition of Moneda's platform. You'll see in our presentation that we have enhanced our breakdown of AUM by asset class. In our AUM bridge schedules for the quarter and the full year, note that Moneda's platform is recognized on a separate acquisitions line for the initial inflow. From year 2021 onwards, Moneda activity will be reflected in the normal bridge line items. Given we are raising our next flagship private equity fund during 2022, you can expect more fundraising-related growth in total AUM compared to 2021, as the dry powder will be recognized when capital is committed in each individual closing. Fee earnings AUM was $17.9 billion as of year-end 2021, up 132% including the addition of moneda, and up 20% on an organic basis, reflecting the similar growth rate in our revenues for the year. As Alex noted, our record deployment pace in 2021 was the driver of fee earnings AUM, and revenue growth, and we deployed an additional $733 million in the fourth quarter. Nearly $400 million of that amount was in private equity, where fees are based purely on deployment, and that amount will flow into fee earnings AUM and begin to earn management fees here in the first half of 2022. Another $300 million of that fourth quarter deployment was from our fourth infrastructure fund, where the fee structure is split with half charged on commitments and half on deployment. In this case, this amount was already included in the fee earnings AOM, but will still drive incremental management fees in the first half of 2022 due to the portion charged on deployment. Given the increasing diversification of the platform, we're also adding some additional information on fee earnings AUM by asset class in our presentation. The goal is to provide color on the structures and key drivers for each bucket and allow you to more easily frame each piece on our forward-looking basis. Our 2022 fee-related earnings guidance is unchanged. We expect FRE to increase by more than 50% from our 2021 results, with an FRE margin in the low 50% range. As you think about that progression by quarter, remember a few important points. First, our flagship private equity and infrastructure funds charge management fees twice a year based on the updated fee basis. You can expect to see the incremental P&L impact of ongoing deployment and divestment in the first quarter based on activity in the prior six months, and then again in the third quarter, which you can relate to my comments on recent deployments just a moment ago. And second, incentive fees generated by Moneda's products are included in the fee-related earnings as they are measured and charged on a periodic basis and do not require divestment events to be realized. These incentive fees generally crystallize at the year end as a fourth quarter event. Our baseline assumptions for the guidance assume that about 10% of the overall fee revenue from Moneda products will be in the form of these incentive fees. So that is important to know as you think about timing. Note that incentive fees are not included in our disclosures on effective management fee rates in the presentation. I will close by reiterating Alex's messages that we are very pleased with our 2021 results and proud of the PATRIA team for their diligent work across all aspects of the business. One year forward from the IPO, we have already used the capital to expand our platform. And the table is set for us to deliver powerful growth again in 2022. We greatly appreciate the support from all of our shareholders, and we look forward to talking with you again soon. We're now ready to take your questions. Thank you.
spk06: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Robert Lee from KBW. Your line is now open. Pardon me, Robert Lee from KBW. Your line is now open. Please check your mute button.
spk08: Sorry. Sorry about that. Thanks so much for taking my questions. I appreciate it. I wanted to maybe focus initially on fundraising, so I You talked about having a first close, I guess, in the first quarter and the next PE fund. But I guess my first question is, you've talked previously about 50% upsizing on the PE fund and hopefully when you start on the infrastructure fund, any reason to think that's not kind of where you're headed? And I'm also curious about kind of your LP mix, you know, any kind of color on what you're seeing so far on re-ups from existing clients versus, how much of the fund you think could come from new investors with Patria?
spk11: Hi, Rob. This is Alex here. Thanks for your question, and I hope you are well and safe. I think everything that you said is in online with our expectations. I have to be a little careful here because as we are fundraising for our next flagship private equity fund, I would advise us to give a lot of details because we are in fundraising mode and we have our perspectives. But everything that he said is basically in line with what we expect. Josh, should we give any more color here or are we fine here?
spk01: No, I think that's good, Alex. I mean, that's, you know, everything's in line with what we said, you know, relative to prior expectations, Rob. And as you said, you know, we're having, you know, first closings here in the first quarter. I would just add that, you know, with our first quarter earnings report, which will be in May, you'll be able to see, you know, the amount that was raised as of the end of the first quarter.
spk08: Great.
spk01: I'm sorry. I didn't mean to cut you off there.
spk11: No, no, sorry, last comment on the client profile that you asked. Again, I think pretty much in line with prior funds where we have around 70% to 80% coming from re-ups and 20%, 30% coming from new clients. As in the past, I see that this time around we're going to be able to see the same kind of breakdown that I just described. I think that was the second part of your question.
spk08: Yes, it was. Thank you so much. And maybe just as a quick follow-up, sticking with the fundraising theme, could you update us possibly on your thoughts around fundraising, around listed permanent capital vehicles, kind of how you feel about it, at least maybe over the first half of the year?
spk11: Yeah, I think this is a strategy that we are pursuing now. aggressively, as you know, I think, you know, pursuing permanent capital vehicles in general for the four asset classes here that we do manage, you know, private equity, infrastructure, credit, and real estate. I think we can do it basically both ways through listings in the local stock exchanges. And, for example, in the case of real estate, we do have two listed funds in the Brazilian stock exchanges. B3, we also can do it through the listing of infrastructure investment trusts, as we have one also listed in the Brazilian Stock Exchange. And we're also looking to list some of these vehicles in international stock exchanges. I mean, at NASDAQ, we're also looking at the London Stock Exchange to do a listing there. As you probably know, we have already talked to you guys about this. So yes, I think it's a very interesting structure fund. And we are now pursuing, we already have three funds, as I mentioned, down there in Brazil in the Brazilian Stock Exchange. And we also look for buying these kind of these permanent capital structure funds through acquisition, through M&A. And if we do pursue M&A, opportunities in the real estate arena. Within real estate, there is several permanent capital structured funds in the region that were listed in the main stock exchanges in the region, Mexico, Colombia, Chile, and Brazil. So we can also add these kinds of funds not only organically, as I mentioned, but also through M&A.
spk00: great it's very helpful thanks for taking my questions no thank you thank you our next question comes from the line of craig tegan zahler from bank of america your line is now open good morning alex marco hope you're both doing well good morning craig we're all well thank you hi there nice nice to talk to you hope you are well and safe as well nice to talk to you guys so so um On the macroeconomic front, we're actually seeing a divergence here, where the U.S. economy and inflation, the outlook there has been deteriorating over the last few months, while Brazil has started to rebound. So I know this is just a few months, but can you remind us how your business will be impacted if these trends continue? And I'm especially thinking that a lot of your LPs are in the U.S. and Western Europe, and they might be positively positioned for the rebound in Brazil here.
spk11: Greg, thanks for the answer. And we do have also Luis Fernando, our head economist, with us here today. So he can help me answer this question. But in summary, straight to the point, diversification base, right? And I think our investors are really sure about that. And you can see exactly what you're saying. Last year, we had some economies in the developed world performing poorly. well very well some economies in in the developed side of the world or developing side of the world no suffering here or there but i think more from headline news negative headline news than actual data when you cut into the data you can see that these economies have actually done their homework on they were responsible on the fiscal side if you look at the main economy in the region which is brazil What a year on the fiscal side, right? We had, I think, first in the last 15 years, and Luis Fernando here, our head economist, can correct me if I'm wrong, that we had actually a surplus, federal and state, and we reduced gross debt to GDP to 80%, and several economists were predicting that we're going to hit 100% gross debt to GDP in Brazil. In Chile, the economy grew 12% last year, and predicted to grow, if things are right here, 3% to 4% this year. And again, projections were that Chile would grow a lot less than the 12% last year. And so fiscally responsible governments, monetarily straight to the point central banks, raising rates before the main economies in the developed side of the world. So I think we are... heading to a more controlled inflationary environment. And you can see that looking at the yield curves. Yield curves are starting to actually look with a negative trend. And so we might get out of this earlier and economies might start going healthily again. With that, I think it's a... Sorry, I forgot to say, the depreciation of the currency adds to everything that I'm saying. It's a great moment actually to invest in the region. We saw a record foreign direct investment in Chile last year, same in Brazil, not record, but very healthy. And the carry trade looks good for the currencies, right? You can borrow money at zero interest rates all over the world and invest in Brazil with rates going to over 10%. So it's a good carry trade. So that actually stabilizes the currencies in the region and or even actually makes them appreciate, as you can see, in the recent weeks and months. So it's a very benign environment for us, for investors to invest, and a very good environment for us to divest. So as I tried to mention during the call here, is that if this scenario persists, I think it's a good scenario for us to divest and reach our goals and performances, et cetera, but more healthily just divest and and rotate the portfolio. So with all due cautious here, I'm pretty optimistic now around the region because of the homework that was done by the different governments. So Luis Fernando, if you want to complete my answer here, please do so.
spk10: Of course, Alex. Hi, Craig. Luis Fernando here. Just a couple of more ideas that are not very intuitive but are very important to understand. investment environment. So the business cycle in Latin America, with the exception of Mexico, is not highly correlated to the US or Europe. It's a business cycle on its own. So correlations are pretty low. So what you are seeing here, as Alex explained, is that the region starts to get rid of the COVID thing faster than people expected outside Latin America because the vaccination program is a remarkable success and people want to get the vaccine down in Latin America. So the economy started to reopen fast and that allowed the central bank to start moving and not becoming behind the curve. So the central bank started to tighten monetary policy in Latin America back in March last year, March, nearly a year ago. So now we have some countries with double-digit interest rates like Brazil. Other countries are raising interest rates 150 bps per meeting of the Monetary Policy Committee. External accounts are very solid. That's the flip side of having higher commodity prices. And the global inflation plays out in favor of Latin America because Latin America exports most of the oil and grains and minerals, et cetera, that are putting pressure on inflation. And then last but not least, we have this environment in which the currencies are appreciated right now. They were remarkably undervalued. That's a point that we made several times. Now they are not getting... fairly valued or over that coming less depreciated than they were 12 years ago. So very benign environment. But of course, you have to benefit or to explore this when the cycle didn't look that good. And people are still a little bit scary or skeptical about Latin America. That's what we that's what we did pretty much over the past couple of years. Now, Maybe we are getting a different environment in which we may consider some realization because all the asset parts are going up. Why not? Or speed up the fundraising.
spk00: Great, guys. That was very comprehensive. I have one follow-up on M&A. just after the Modeda acquisition and the growth capital partnership. But, you know, how would you rank or list the product gaps and also underpenetrated geographies that you're most attracted to? You know, I heard your earlier comments in Q&A, and it sounds like real estate is probably at the top of the list. And then in terms of geographies, Brazil, Mexico, and Colombia on the geography side.
spk11: yes greg this is that again i think i think you're right um yes i think if you look at our breakdown of our aum i think we need to uh it would be good we don't need to but it would be good to beef up real estate diversifying our product offering and i think it's a good moment actually to come in as asset the asset prices now the prices for general partners in this field uh have actually gone down because interest rates have gone up so we shied from actually looking at these assets, these general partners that actually manage real estate funds last year because, or the year before, as interest rates were lower and so these assets would be more expensive. As interest rates rise, I think we benefit from actually then looking into this asset class more closely. In addition, it's an asset class that would be very good for us to to add more AUM to our portfolio. Mexico is a place that we're not there yet, and I think it's a fine economy in a macro sense. I think everything that is going on in the geopolitical side, I think it favors onshoring to Mexico, serving the U.S. So you guys know this theme very well. I've been in Mexico a couple times last year, and if you do visit, as most of you probably did, whatever flight to the north of Mexico, prices of real estate there are just going crazy because of warehouses being built and the lack of electricity to actually supply the power for all these factories that are now serving the U.S. and more and more so. Again, with these geopolitical issues going on around the world, it favors Mexico. It's a different driver, as Luis Fernando just explained. Mexico is driven by different policies forces it's the Mexican economy I mean which is good for us in diversifying the portfolio so real estate yes Mexico yes also I think in Colombia we're doing so well in private equity and infrastructure and I think we are known already there in the market as the number one alternative asset manager so it would be also good to expand geographically there So that's where we're looking into, and that's what is the mission here of our M&A team. So hopefully I answered your question. Great. Thank you, Alex. Thank you.
spk06: Thank you. Our next question comes from the line of Tito Labarto from Goldman Sachs. Your line is now open.
spk05: Hi. Good morning, Alex, Marco, and Josh. Thank you for the call and taking my questions. A couple questions. First on your FRE margin, you know, good performance in the quarter. You're still guiding for kind of low 50% FRE margin. Just help us think about that because you're above 60%. You know, last quarter also around that 60% level. So what's going to pressure the margin this year? Is that just more investments? And is there any seasonality to that? Do you expect the margin in the second half of next year to be higher than the first half this similar to what we saw in 2021. Yeah, that's my first question. Then I'll ask the second question after that.
spk09: Hi, Tito. This is Marco. So margins, there's no really relevant pressure in margin. What happens and how the way we tie our guidance is when we add up moneda for the last year, you get only one month of moneda, and moneda does have a smaller margin. So when you blend it up, we're going to land it in the low 50s. But actually, we've seen the business scaling up. We are not providing any relevant guidance in terms of a blended margin increase. But pressure, of course, has not been a significant point of concern for us.
spk01: And Tito, Josh, just one thing I would add there to your point on seasonality. One thing to consider there, we mentioned this in the remarks, is that generally the incentive fees for Monado will crystallize in the fourth quarter, and those incentive fees are part of fee-related earnings because they're measured and realized on a regular basis without the need for actual investment exits or realizations. And so what that can cause is a pop in the margin in the fourth quarter. That would be the big element of seasonality to think about.
spk09: Just to add one more point, if you look at our financials and you compare the admin expenses, the progression over time has not been significant. And even the personal expenses, when adjusted for the compensation from 2020, there's also not a significant increase in expenses.
spk05: Great. Thanks for that. So just one question to clarify on the moneda, right? I know you mentioned that incentive fee. And if we back out, trying to get the management fees, I'm estimating around $8 million, $9 million for moneda. I guess that was in one month, right, if you had about $2 million in total expenses coming from moneda in the quarter? Or simply said, how much were the management fees for moneda in 4Q?
spk09: So what you get is about total net revenues for Moneda in December 9.1, and that translates into a 6.5 of FRE. And you get a little, around 50% of this amount being management fees and 50% incentive fees.
spk05: Okay, that's clear. So that's how we should think about the margin for Moneda, and you'll get, as Josh mentioned, that pop in 4Q next year.
spk09: We indicated a guidance of margin in our previous call for Moneda. We actually laid down a page where Moneda was at around 40%. So there is a slight increment of scale, but you can generally think of 40% plus some scale.
spk05: Okay, that's great. Thank you. That's helpful. And then the second question is on the performance fees. So a good increase in the performance accrual fees. How do you think about the environment for potentially realizing some of those fees in 2022?
spk11: Well, I think here, this is Alex here, my view is that the scenario, the macro scenario, is getting more benign or better for us to realize investments I think if we go back a year from now, there were several question marks in the region. Will the region be able to be fiscally responsible? Will the region then suffer from inflation? Will the central banks be responsive to inflation? Will the region be able to comply with the vaccination programs or accelerate them? The answers for all these were yeses. And as Luis Fernando, our head economist, also said, a couple of minutes ago. So I think we come out of 2021, the region as a whole, I'm generalizing, better than expectations. Even though you saw that the data was going into the right direction of what I said, it was very negative headline news. And there was, of course, some political uncertainty on the Chilean side because of the election there. And the Brazilian president doesn't help much because of his relationship with the media. It's not very good. So on that side, so we had very no negative headline news, but the data is by itself. And I think media started actually turning their heads to a more positive view on the economies. And then the numbers came out earlier this year. Some of the numbers I mentioned were very, very positive. So you go into 2022 with a better background, economic background, monetary background, And on the currency side, because of the high interest rates, it's more expensive to bet against these currencies now. About 7-something percent in Chile, you know, interest rates are heading to that direction. Over 10% in Brazil heading to that direction as well. So now betting against these currencies is, of course, more expensive than it was two years ago when interest rates were close to zero. So that also helps stabilize the currency and even, you know, appreciate the currencies, as you saw recently. So all of this together, I think, makes us positive on the divestment side. It is hard for us to pinpoint a month or a date, so we're doing everything that we can, of course, to walk through that route. I think we mentioned that on the private equity side is private equity fund five now that we're targeting to divest the assets there, as we did fully divest our private equity fund three, and we did generate performance in 2021 of $58 million for the general partner. Now, again, I think we are cautiously optimistic on that front, if I can say that. And I think as we move into the year, again, it's very hard to pinpoint a quarter, a date. It might slip to 2023, whatever, but I think we are in the right direction and the forces are in the right direction and the And my view, at least, on the economies, the major economies of the region, is more positive than a year ago.
spk09: And just adding to Alex and tying with the financials, what you're going to see as well as we progress over the quarters is that the split of the net unrealized or the net accrued performance fees is becoming better, YOP. we had a higher concentration on private equity fund five. We now see infrastructure fund three and private equity fund six adding up with a bigger chunk of the composition of this net accrued performance fee, which ultimately qualifies as a better, you know, increases our chances of realizing the performance fee as we have not only number of companies within each of the funds, but also different funds. This will progress over time, so we continue to believe that Private Equity Fund 5 will be the next contributor for performance fee, and within Private Equity Fund 5, I always like to refer to that there is a variety of possibilities and combinations that will generate that performance fee, but it's good and positive news that The other funds are also adding up to this NADA crew performance fee. Okay, great. Thank you very much.
spk11: I think here also, if we look at also the Moneda's incentive fees here, I think that's also a big contributor for us in 2022. And again, I think if you look at where the region is, and of course on the Moneda side, On the currency side, it's also important for the lifetime equity strategies and some local debt strategies. So you needed, as you know, 880 pesos to buy a dollar. Today, you need 800. You needed 5.60 to buy a dollar. Today, you need 5.20. So that actually pushes also the performance fees of these local funds in the right direction as well.
spk06: Thank you. Our next question comes from the line of Marcelo Tellez from Credit Suisse. Your line is now open.
spk07: Hi. Good morning, everyone, and congratulations on the result. Hi, Alex. Hi, Marco. I have two questions. The first one with regards to your capital deployment, clearly 2021 was a very good year for you with more than $2.5 billion in deployment. So how should you think about, you know, your capacity to deploy into 2022? Do you think you can, you know, keep more or less, like, you know, at the same pace? And my second question is more of a, you know, top-down question. You know, of course, you have elections in Brazil this year. You know, the candidate that is leading the polls, I think, clearly has more of a you know, of agenda of higher participation, you know, of the government, you know, in the, in, in potentially infrastructure and in the investments and how, and most likely you could expect a, you know, a bigger role of the BNDES, you know, Brazil's National Development Bank down the road. So how do you think, you know, an increased role of the BNDES can impact your business, either your ability to deploy or your ability to find new assets in Brazil. Thank you.
spk11: Well, on the deployment front, and again, thank you for your question. This is Marcelo, this is Alex here. And I hope you are well and safe as well. On your deployment question here, We still have a lot of room, which I call, no, we name it capital that is to be called, which will then generate fees, as shown by Marco here in this presentation. So we have room to continue investing our private equity fund six, our infrastructure fund four, our other strategies in real estate and credit, and of course in public equities there. In addition to that, as far as revenues goes for 2022, we did deploy substantial metal capital for our standards in the second half of 21, which will only generate revenues in 2022. So these two movements, with this last one that I'm going to describe, as we do fundraise we will then continue investing not only the prior funds, but we will begin investing the new funds. As mentioned, we are currently raising our next flagship private equity fund, and we can invest while we fundraise. So if we raise $100, and I aim to raise $200 for this fund, I can start investing this $100 that I already raised. So as mentioned, we expect to have a first closing of private equity fund seven, for example, in this quarter. For, in my example, $100. I can start investing that $100. I don't have to wait to raise the whole fund, the $200 in my example, to start investing. So not only will our revenues in the 2022 first half be impacted positively by the investments that we did in the second half of 21. Number one, number two, we have still a lot of dry powder, as you know, to invest, and that then pushes revenues in deployment in the first half of 22, pushes revenues up in the second half of 22. In addition, and thirdly, as we raise new funds, which we mentioned that we are in the process of doing, I can start actually investing this fund. I don't have to finish fundraising to start investing the fund. And so all of these three forces push towards the right direction here. And that's why we mentioned that we see, or no, my guideline is that fee-related earnings will grow by 50% versus 2021. On your, and then I'll ask Marco or Josh to add anything to my answer here, but on the political side, we already lived through two mandates of Mr. Lula, as you know, and forget about the value side and whatever, I think it's a war of values here, and the current president, Mr. Bolsonaro, and And Mr. Lula, as you mentioned, which is a presidential candidate, I think they differ a lot on the values and et cetera. But as far as the major drivers of their economic programs, I think they're very similar. I think Mr. Lula says a lot of things to gain popularity at this moment of the campaign. So he's shouting to his own crowd that he needs to do that, I think strategically right now. to be able to call in his supporters to come about and see his percentage in the polls go up, as he did when he ran for presidential elections in the past. We already saw Mr. Lula running for five presidential elections, so more or less we know the strategy, right? And then as things approach... to the second round or even earlier than that and he's already showing that actually at this moment. He drives himself to the center and trying to attract more of the moderates and the business crowd as he is by selecting Mr. Alckmin as his vice president. Now that's a clear sign as he did with Mr. Alencar as you remember well, his vice president when he was the president in his first term. So in the end, I think, even though on the value side, we can know each one has their own opinions, and Mr. Bolsonaro and Mr. Lula differ tremendously, I think on the economic side, I think it's more or less similar. It's not the same, but it's very similar, more or less the same economic programs that both of them will pursue. Maybe different from what Mr. Lula is saying, but I'm more looking at what Mr. Lula actually did. when he was a president. On the BDS front, I don't think he will have any more leeway to do what he did with the BDS and funding the champions of Brazil. As you know, these champions actually got about in messy corruption scandals, right? Some of these champions. So I think it's going to be very hard for Mr. Lula to come around with kind of the same strategy. Now I'm going to finance these champions again and using the BNDS. I think there's going to be a lot of pressure from society, from the legal systems, from Congress, not to allow him to go through that route. And I think Mr. Lula is everything but, uh, uh, non-intelligent. He's very intelligent and smart, politically smart, uh, to know that. So I think he, I think he saw that, um, He can use the capital markets to finance deals and finance as it happened during the last years. While he was not a president, we had record privatizations, record concessions, and the private sector coming in and doing great work and actually buying all these assets. He saw the minister, Mr. Bolsonaro's infrastructure minister, doing a great job, Mr. Parcisa de Freitas on that front, So I think in my view, you might see that there's a different route than going through that route that he did try to go through and financing champions and actually getting into big trouble on the corruption side. So that's my view, I think. But again, I'm forgetting about the values. I think on the economic front, they're both similar. And as you probably know, Marcelo, I think the financial markets is kind of already pretty going through that thought process that I just explained and say, well, I know that one is going to continue to be more of the same on the economic side is okay. The other one, I think with Mr. Alckmin and everything that he's saying to the business crowd is going to be okay as well. And I think that's why the markets are a little calmer in the recent weeks. So I know, Marcos, if you want to compliment, or Luis Fernando, please.
spk09: Yeah, I'll just compliment on the financial side to help. Marcelo, when you're building up your model, I think the best way to think about capital deployment on the drawdown funds, if you add up the main funds to be raised, you're going to get somewhere around $6 billion, and if you just split that number in between three to four year of deployment and adding up plus the pending fee earnings AUM, you get to a number that is somewhere around $2 billion. And I think that the 2.5 for 21 is a little bit of an exception because it has been an extraordinary year of a capital deployment. We could do that again because we gave you a little bit of elements and the timing and opportunity for the region. I will just simplistically on your model lay down and splitting evenly over the three to four next years for the drawdown funds.
spk10: Excellent. Sorry, Marcelo, just a compliment from Luis Fernando here from the macro point of view. So your question about us being concerned with the crowding out by the NDS, I need to reemphasize Alex's point. So corporate governance in Brazil, especially for state-owned companies, changes. The government cannot do what it did during the 2000s with Petrobras, BNDES, Electrobras, et cetera. So this is the first thing. But even if it could, our business model does not depend on what BNDES does or doesn't. So we did money. We created new areas. We did investments. This very different kind of government. So we had central government, leftist government, right, harder right government. So there are plenty of opportunities for us to explore in Brazil or outside Brazil. So we don't think that the model of BNDES crowding out the private sector is going to work because there are now many more institutional restrictions. But independent of that, there is no lack of opportunities. The problem we don't have in the region, especially Brazil, is lack of opportunity to invest. So if the government becomes a little bit more active in one area, there are several other industries that we can target and explore. So not really a major concern for us.
spk07: Very good. Thank you so much for your detailed answers. Appreciate it.
spk06: Thank you. Our next question comes from the line of Ricardo Luchiteago from BTG Pactual. Your line is now open.
spk02: Good morning, everyone, and congrats on the results. Could you please help us to understand a little bit your general expectations on a couple of details from the new PFM7? I know a lot has been said already about that, but if you can comment, I want to understand and get a sense on what is the fundraising schedule after the first closing in the next quarter that you mentioned, and how much AUM is expected for the new fund after it's fully raised. Thank you.
spk11: Thank you again, and this is Alex here. Fundraising for this kind of close-end funds, they normally take 12 to 18 months. That's the natural time. the historical average, not only for our PATRIA funds, but in general, in the industry. We've been seeing a lot of interest, but we also seen that COVID and due diligence and meetings, as we did mention in our last call, did interfere a little bit in the pace. because investors, some of them, they want to come down to Brazil to visit some of the companies, and then they had to, of course, change their minds and redo their processes, because some of their processes did include local visits, and, of course, not only us, but they had to redo their process for all the funds around the globe, and they couldn't travel. So there was some adaptation last year to the new reality, which is the COVID reality where traveling is more restricted. But I think we overcame that, and that's what we mentioned in our last call, and things started heading away to the right direction, and we expect I've mentioned the first close in this first quarter. So I can mention what happened in the past, and it's hard to predict the future, but So looking at the past, all of the KPIs that we have, we have conversion rates, right, which is you generate leads and then you convert them to indication of interest and then you convert them to what we call in the industry here soft circles, which is a more clear indication of industry, blah, blah, blah, blah, blah, all the way to signing a subscription document, right? And we do have a process. We follow the process. We have gates. to manage this process that I just described. I'm describing here very superficially. And the indicators of these gates are very much in line with the KPIs and the indicators that we had in prior funds. So nothing that we are, no, fine there. I think we had Rob ask a question on re-ups and the new investors. Now, again, From what we're seeing from the KPIs of this fundraising and from conversion rates up to now, et cetera, more or less the same as previous funds, where 70% to 80% will come from re-ups, 20% to 30% from new investors. We're not seeing anything really different from prior funds, if I'm able to answer your question. And how do we know that? Because following these KPIs that I mentioned. So hopefully I answered your question.
spk09: And Ricardo, just to help you out with your model, fundraising is a metric that we report and we will continue to report every quarter. So what I would encourage you is as we move forward over the year during the reporting for the first quarter, we will clearly present where we stand with that and not only showing that on the roll forward AUM, but also giving a little bit more color in how we are progressing.
spk02: Very clear, Ganesh. Thank you.
spk06: Thank you. Our next question comes from the line of Gilhern Grispan from J.P. Morgan. Your line is now open.
spk04: Hi, Alex, Mark, or Josh. Thank you for the call. Just two quick questions here from my side. The first one is more of a technical question. We had $2 million expenses in a line that you guys called deferred consideration. I just want to make sure we got correctly that this is retention bonus for Moneda's actives. And if we're going to see this $2 million repeated going forward every quarter. And then the second question is related to incentive fees from Patria itself. We have been seeing a very good 2019, 2020 a little bit more modest, but we still saw collection. Of course, last year was a little bit more challenging, but just want to touch, based on the outlook for this year, we have been seeing markets rebounding, FX doing well. Just want to get an idea if those funds have high watermark, how close you guys are to this performance collection, and the outlook for this year for this line. Thank you.
spk09: Yeah, happy to. So, for the first one, that your statement is correct. So this is deferred compensation for Moneda. What you're going to see over time, because as we indicated in the third quarter of the reporting for the acquisition of Moneda, third and second quarter, we indicated that there is a deferred compensation of $59 million. And the way this flows through into our financials is every month you're going to see this amount being accrued through our balance sheet. And that's the amount that you know. So two-ish is the pace, if you will, of increase that you see basically every month for the upcoming period of time. On the second one, and I can speak a little bit about from the technical perspective. Alex will jump in and talk a little bit about the performance. What you're going to see is the incentive fee that has been accrued for our full year. It's coming mostly from Moneda. It's coming from its high-yield funds that have outperformed the market very well. The equities fund, both in PATRA and Moneda, has not contributed with incentive fees significantly through this year. And as you can tie to the performance of the equity market in the region. We, of course, have a positive view, and as we can see from the beginning for this year, that has already been a significant bounce back. Hard to tell where we're going to land over the year. The prospects for equities for this year are better than last year. Most of our funds respect the high watermark, so there's a big way to go before we we start kicking in with incentives fees, but that's directionally, that's the explanation that I would bring up.
spk11: And just complementing here, Mark, I think most of our credit debt funds and our illicit equity funds, we charge incentive fees against a benchmark. So Even though if our fund did not perform as we expected, for example, let's say that our fund was down 2% for the year, but the benchmark, relatively benchmark, be it a Chilean benchmark, a Brazilian benchmark, was minus 8%. And our fund, again, in my example, was minus 2%. We performed better than the benchmark, and we still collect incentive fees. Okay? Okay. So that's also an interesting dynamic of our listed equity funds, most of our listed equity funds, and most of our credit funds. That's what I wanted to add here. Thank you.
spk06: Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to CEO Alex Tsai for closing remarks.
spk11: Well, thank you, operator, and thank you all for participating. It's been a real pleasure to be the CEO of this company in 2021. Thank you for your support. Thank you, all shareholders, for your support. And thanks to the team and our limited partners for also the support and the stamina and the competence for delivering such great results. Very proud of Patria, the team. I'm very proud of our 21 results. Now heading to 22, again, guidance of 50% growth in fee-related earnings. And we had a good January and steaming ahead to deliver the results again. Very excited to be here. Thanks for your support. Be well, be safe. Hope to see you guys in person. That means that we are over with this COVID craziness. And again, be well, be safe. Hope to see you guys soon, and thank you very much.
spk06: This concludes today's conference call. Thank you for participating. You may now disconnect.
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