Patria Investments Limited

there's a clear view that while our industry clearly benefits from the powerful long-term trends in asset allocation, it may face some micro headwinds in the short term. And we are certainly seeing that reflected in sector valuations. As you think about Patria, it's important to consider the backdrop in which we operate. And right now, we think Latin America looks quite compelling compared to most parts of the globe. Turning back to our business, I'll go a little deeper on fundraising and then add some color from our asset class verticals. Fundraising in the quarter included a notable closing of Brazil-based capital for our newest private equity fund. We talked a lot about diversifying our platform and product offering, but this is a great example of our efforts to diversify our distribution channels and further democratize alternatives in the region. This closing of a billion reais focused on the high net worth and qualified retail channel and included more than 7,000 investors with check sizes ranging from more than a million reais all the way down to 10,000 reais. It is a prime example of how we believe we can harness the financial deepening in the region to drive AUM and earnings growth. We targeted $4 billion of fundraising in 2022 across a diverse range of products. And each piece of that target is now well within our site. While our targeted closing dates should get us there in Q4, it is possible that a piece could slip past the end of the year into early 2023. Over 2022 and 2023 together, We are targeting $6 to $7 billion in long-dated closed-end drawdown fund structures. This is coming not just from our two flagship funds, but also from a growing offering of complementary products targeted at both the international and local investor universe, including strategies like growth equity, infrastructure credit, and private credit. And that 6 to 7 billion doesn't include fundraising in our more perpetual strategies that can constantly fundraise, where we have already seen inflows of more than 1.4 billion so far this year. It also doesn't include our permanent capital strategy, where we now have more than $1 billion in AUM across REITs, real estate investment trusts, and core infrastructure products, and expect to add another $1 billion next year through organic fundraising and additional M&A. Now looking at some highlights across the platform. For private equity, in addition to the fund closing, we announced the agreement for Laboro, a leading agricultural inputs retailer in Latin America and the largest in Brazil, to become a U.S. listed public company. This is an important step forward in the divestment process for Fund 5 and a great case study of our success in the agribusiness sector and the execution of a pan-regional consolidation strategy with more than 20 M&A transactions completed to build the company we see today. In infrastructure, we continue to see an accelerating fundraising cycle as we target the first closing of our next flagship fund in the coming months, more than one year ahead of what we anticipated back at the time of our IPO. We also close our second infrastructure core vehicle targeted to local Brazilian investors in Q3. The divestment process continues to move along with some key assets with an expectation to deliver significant realizations to our limited partners in the next few quarters. Credit continues to show strong relative performance despite historically challenging market conditions in the asset class. The high-yield strategy is outperforming its benchmark by an impressive 660 basis points year-to-date with about 90% outperformance attributable to asset selectivity with a yield to maturity of more than 13% at the end of Q3. The local currency strategy is also outperforming its benchmark with a yield to maturity of more than 15%. On a broader basis, these two products are both performing 1,500 to 2,000 basis points better than the world aggregate bond index, which is down 20% year to date. Our public equities platform delivered solid performance in Q3 At that time, equity markets were a clear bright spot relatively to the U.S. and most other world markets. The Chilean small-cap strategy, for example, returned 12% in Q3 and outperformed its benchmark by 370 basis points. And in real estate, BBI raised more than 100 million reais to launch a new REIT, Real Estate Investment Trust, vehicle, focus on credit assets. This continues to be an area where we remain active on the M&A front and believe there is a very replicable permanent capital strategy to be pursued in other key Latin American countries. Let me now turn things over to Marco to give some more details on the numbers. Marco.

Thank you, Alex, and good morning, everyone. Looking first at the P&L results, we generated fee-related earnings of $31.7 million in Q3 2022 and $94.6 million year-to-date, up 46% and 67% respectively from the comparable prior year periods. FRE was in line compared to the second quarter, following a similar pattern in the fee revenues and fee earnings AUM. A few known factors coincided to limit the uplift that we will typically see moving into the second semester of the year. And our trajectory remains on track for our full year guidance. Our second infrastructure fund reached the contractual end of its fund term in June. And the lack of that fee stream offset the additional revenue generated by infrastructure deployment in the first half of the year. Also, as noted, last quarter there is a fee holiday on the first closing of our latest private equity fund, meaning the private equity deployment in the first half, while still fee earnings AUM in nature, is not effectively generating management fees yet. And finally, the outflows from credit in the middle of the year, which have slowed and we believe turned the corner, have resulted in credit fee earnings AUM being lower than we hoped at the beginning of the year. Despite these upsetting factors for management fee growth during the year, fee revenues has remained very stable, demonstrating the stability that makes our fee earnings predictable. In the fourth quarter, we expect to deliver similar management fee revenue. with the addition of the year-end incentive fee crystallization adding to the FRE results. This should allow us to deliver our financial guidance of 50% FRE growth, which we first conveyed exactly one year ago, through an environment where maintaining guidance has proved difficult for many companies. The FRA margin was 57% for both the quarter and year-to-date period, continuing to run on the higher side of our mid-50s guidance, as both personal and administrative expenses have remained relatively consistent with first half level. Net accrued performance fee rose to $428 million, up from $419 million last quarter, and up 23% since the beginning of the year. The quality of our private equity and infrastructure portfolios continues to support significant embedded value for shareholders, and exit processes continue to move forward for several portfolio companies. As we look to the fourth quarter, there remains a possibility of a performance fee realization event, with the outcome now being more binary. It's safer to assume an event that crystallizes in 2023, though we would expect to have clarity by the time we announce our Q4 earnings. Turning to AUM, total AUM was $26.5 billion at September 30, up slightly from the prior quarter, with the inflows in private equity offset by outflows in credit and positive valuation impact offset by currency impact. Total AUM is up 76% from one year ago, reflecting the expansion with Moneda, and up 11% year-to-date. Fee earnings AUM was $18.6 billion at September 30, compared to $18.8 at June 30, with a quarterly change generally driven by the same factors affecting fee revenues that I mentioned a moment ago. The contractual fee turnoff of infrastructure two is the largest driver. And while we also saw some additional net redemptions in credit for the quarter, driven largely by Chilean clients, we're seeing the macro headwinds for those low settles as we enter Q4, following the strong rejection of the proposed new constitution in Chile. I will close with a quick reminder of my upcoming transition to focus my time more fully on PATRA's growth strategy in the coming years as Chief Corporate Development Officer. It has been a privilege to serve as a CFO in these recent years, and I want to assure you that I will continue to be a regular face to PATRA's shareholders from the senior leadership team. Bringing Ana Russo to our management team adds a distinctive set of skills that will take our finance and accounting team to the next level as a public company. In turn, it is going to allow me to best leverage my strengths to achieve our future vision for the growth of the platform. You'll hear a lot more from Ana in the coming quarters. But for now, I will turn to her for just a few quick words. Anna?

Thank you, Marco, and good morning, everyone. It is a pleasure to be here with you on the call today and look forward to meeting you soon in person. I plan to spend this fourth quarter working closely with Marco and the team getting up to speed, and we are off to a great start since my arrival at the beginning of the month. Marco has built a wonderful team, and I'm excited and honored to have the opportunity to step into this leadership role. Obviously, I would defer any business-related questions to Alex and Marco this time. I will turn it back to Alex for the closing words.

Great. Anna, wonderful to have you on board. We are adding important talent to our leadership team for our growth as a public company. and positioning our team to really maximize their strengths to drive PATRIA forward. I want to reiterate thanks to Marco for the incredible job he's done leading PATRIA through this chapter in a very wide ranging CFO role. And it begs that I pause and reflect on what we have accomplished in the seven quarters since the IPO. We expanded our platform organically and inorganically with total AUM of 84% and fee-earning AUM of 141% since the end of 2020. Our IPO capital has driven three strategic M&A transactions, giving us a substantial credit vertical, a new public equities and pipe expertise, a talented growth equity team, and an anchor for real estate in Brazil. Our fundraising cycle continues to run ahead, and our expectations at the APO, even given the difficult environment here in 2022. Our drawdown funds have deployed $3.2 billion to new investments to drive organic fee-earning AOM growth of 27%. Our portfolio is performing very well with two most recent vintages of both private equity and infrastructure funds all accruing performance fees today. And an overall performance fee accrual is up 55% since the end of 2020, or up 76% when accounting for the interim realizations. We have also committed to giving you some guidance on our fee-related earnings, where we delivered in 2021, and our realtor rate we expect to deliver again in 2022 on 50% growth. On that note, I'll close by again encouraging you to attend or tune in to the investor day event we have coming on December 5th. It's great timing for us to provide a clear vision on what we want to accomplish over the next several years and we are planning on an engaging program that will showcase our platform with presentations from across our leadership team. I think you will leave with renewed view on what we are today, what we want to become, and the value we can deliver to you as shareholders along the way.

And I'll be happy to take your questions.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Craig Siegenthaler with Bank of America. You may proceed.

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

Hi, Craig. How are you? Thanks for participating. Here we are. I'm talking to you, Craig.

So far, the Brazilian stock market and the HAL have reacted pretty positively to Lula's win. And so that's a positive for the valuation of your portfolio companies, the return translation, USD, and also the realization outlook. But I want to think on this a little deeper. So besides the market impact, do you see any other potential positives or negatives from a Lula administration, especially on the domestic fundraising front, And I'm also wondering if infrastructure spending could also be an important catalyst for Patria.

Yes, I think the answer is yes. I think we see that as a catalyst, to be honest. First and foremost, I think if I go back 20 months ago, 24 months ago, to be honest, Greg, Bolsonaro as the president, and we were in the middle of COVID, and I think he was trying to do a good job, but he was very criticized by civilians and the international community and how he handled COVID, et cetera. I think in the end, I think he did a good job in the vaccination programs, where now over 90%, et cetera. But I think the country was going through this general criticism around the world of how Mr. Bolsonaro was handling things. Now, we turn to 24 months after that, to today, I think investors are a lot more positive about Brazil, and because also on a relative basis, from then, 24 months ago to today, I think Mr. Bolsonaro came back and had a more positive stance on COVID, the economy is open again, and comes the war with Ukraine, and the region doesn't have any geopolitical risks, et cetera, everything that we said over the call, and you did see how the markets reacted to all of this very positively. Finally, I think some of our investors were waiting for the election. I think that if Mr. Bolsonaro had won, we would also be in a positive stance. I think they were more concerned in this handover, Passover, and I think we talked about that over our dinner in London a couple weeks ago or a month ago. And now I think what we listen from our investors is like, okay, the page is turned. Let's move forward. And in addition, and I think with the international community, I think Mr. Lula does stand as a positive outcome. And I think that Mr. Lula will play to the international community audience where he is going to focus on two, three things. that will be very, very well accepted on the environmental front, number one, on the civil rights, number one, number two, and maintaining fiscal and monetary discipline, number three. So on the first two, they're already there enacting and inviting to be the environmental minister, a person that is very, very engaged with the international community And the international audience, which today is center-left-left, is already applauding. Mr. Biden in the US already congratulated. Mr. Lula said we can do so many things together. You have the Norwegians coming back and already saying that the funds for the Amazon forest recuperation is already back on $2.5 billion. They had halted that flow of money to Brazil because of Mr. Bolsonaro's stance on the environment. You have Mr. Macron. You have a center-left government in Germany also applauding Mr. Lula. And we have China, which I was very impressed with the congrats letter that Mr. Lula received from the leadership in China. saying, again, you are the person that we expect to really deepen the relationships with Brazil. And, of course, China being left-center-left and whatever, they have the same kind of... So the audience, international audience, is pretty much aligned with Mr. Lula's speech. So, yes, and I think that investors now, I think, of course, liquid securities comes first because they react immediately to a positive stance. But I think that our fundraising locally and internationally will definitely benefit from that. On the local front, notably, we did raise a record high for a private equity fund in Brazil in the month of October prior to the election, even with interest rates at $13.75. So that also shows us a positive sign how investors are willing to invest more in alternatives and, of course, with Patreon. So, no, we're positive here, and I think Mr. Lula will do the right thing. He's everything, but not pragmatic. He's a very pragmatic person, and he'll definitely play for the international community crowd and audience, and I think he's already been well accepted, and I think he will continue to be. And that plays very well with our investors.

Thank you. Got it. I think the U.S. Vice President will be attending his inauguration, too. Alex, my fault is on Moneda. Credit AUM declined sequentially. You know, that was a mix of negative flows, depreciation, a little FX. I know something's going on in Chile with the pension plans. There is some pent-up redemption demand by something that played out, I think, a year or so ago. Can you just help us with kind of what's going on with Chile and also help us with the timing and the size of these redemptions if they're going to continue?

Yes, of course. We saw on September 4th, the Chilean society, civilians voting against the new constitution. As of that moment, the redemptions had halted to diminish significantly. So we saw a definitely positive move on that front, Greg. I think Chileans were worried about this new constitution that was being proposed by the current president, Mr. Boric. As you know, over 60% of the Chilean civilians and voters voted against the new constitution. And we saw the redemptions basically halt. And now I think if we continue as we go into 2023 with the same amount of inflows that we had in 22 or even more, and we don't have those deductions, and I think we come into 2023 very optimistic. And in addition, we're already seeing some of that money that came out being reinvested in the fund. And why did more than just the investors were worried about the new constitution, the way that the pension funds in Chile work, they have to balance their assets accordingly to an index, which is an average of all of the other pension funds together. So, for example, a very, very simple example. We have 60% equity and 40% fixed income, and the average of the pension funds is 58% equities and 42% fixed income. You, as you know, the pension fund that is out of this now 58-42, you have to then redeem from equity funds and invest in fixed income funds and vice versa, because you have to follow the average because your performance is compared with a benchmark, which is the benchmark of the average of the industry. So they were actually worried that this could actually affect their performance. And in addition, they wanted to have a cash position if they had to come and have more withdrawals coming forward. With the rejection of the new constitution on September 4th, everything got reverted. They want to be more exposed to Chile. They want to be more exposed to our alternative products. They don't have this issue of keeping cash anymore. So not only are the redemptions halted, but we already saw investors coming back and reinvest in our funds. not only the institutional channel, but the family offices channel. So it's pretty nice, pretty positive on that front, and I think we see that trend continue in 23. Thank you.

Thank you, Alex. Thank you. One moment for questions.

Our next question comes from Ricardo Bupigo with BTG Pactual. You may proceed.

Good morning, everyone, and thank you for the opportunity of making questions. I have three on my side. First, can you please talk about when the next closing of P Fund 7 and the new Infra Fund are expected to happen? For my second question, can you please explain what happens with the deployment levels to be flattish far over a quarter when you look at Q3 and what we should expect in the following quarters. And finally, can you please give more color what drove the loss in financial results this quarter? Thank you.

Thank you very much. Nice to talk to you and thanks for participating in our call. So three questions. Number one, next closing is on Private Equity Fund 7 and Infra Fund 5. Private Equity Fund 7 we did a couple of closings, I think two or three closings during the third quarter with Brazilian clients, Latin clients, and outside of Latin America clients, mainly U.S. So we are going ahead. I think we're having these multiple closings every month, every six weeks. As soon as we... I think that's how the industry works. I'm not saying anything that is... not an industry standard. As soon as we have enough volume, around 100 million, 100 something million of investors, we then have a closing, which is a very simple process, to be honest. So we keep some of these subdocs, subscription documents in escrow, and then we join 100 and 100 something million because there's legal costs associated to do a closing, and then we then get all these subdocs already signed and do a official closing. And that's what we did during the third quarter, I think, with Latin investors, as I said, with U.S.-based investors, and with Brazilian investors. The Brazilian fundraising, which is very interesting as well, as we had a record high fundraising for our private active fund in Brazil with XP being the distributor. Interesting here is like different than what I just described. In Brazil, when you fundraise for a private active fund, or an alternative asset fund like ours, it's like an IPO. You have the beginning and an end. So you have 20, 25, it's basically 25 days, which is around 20 working days that you have to fundraise like an IPO. You start day one and 20 working days later, you have to stop fundraising. And we, with XP, we put on the cover that we're going to raise around 800 and something million reais. There was a 1.3 billion demand, so we managed to do the hot issue, which is 20% more, and reach a billion reais, and still we had another 300 million reais that we couldn't supply, so an excess demand. So we're very, very excited, but we could not take on those 300 million reais of additional, and we stopped. I think on day 15, we stopped even doing meetings because we were already at 1.3 billion reais and we knew that we couldn't cope with the excess demand. And investors do get, of course, annoyed because by the Brazilian regulation as well, it's first come, first served. So the guys that came in later would not be served. So we then know from 20 working days. We have 15 working days of fundraising the other five. We just cancel the meetings After X amount of months, which is no if I'm not mistaken around four months. I can do another issuance Which now I'm going through the process that I just described and we're very excited that maybe sometime early next year We're going to do another one and I think we can do another one and because there's a now after though everything that I just answer here to Craig's question with Lula already there and things going on in the right direction, and the interest rates in Brazil showing that they're going to go down in the second semester of next year. That's what the yield curve actually shows us, the Brazilian yield curve shows us. I think we can do other of these issuances. So I'm very, very excited about this. So that's on private equity seven. On infrastructure fund five, we haven't started, and now we're We're talking to investors. We haven't had a first closing yet. In private equity fund seven, we had a first closing, I think it was March of this year. We're planning to have a first closing sometime this year or early next year. It depends more on bureaucratic issues. It's very interesting. We're having a reverse kind of increase. When are we going to get out with infrastructure fund five? Here, it's interesting as well as a general comment. I know you didn't ask this, but just as a general comment here, an additional comment. Private equity fund seven and fund six and fund five, the previous funds, a third of the fund was being raised, a third, so 40% of the fund were raised with North American clients, the U.S. and Canadians. And as you know, the U.S. market in particular is a crowded market and we're waiting for a better moment to raise in the U.S., so I think we're going to get there to the targets in private equity fund seven but the U.S. underperforming and we are overperforming in other regions of the world, the Middle East, Israel, Asia, Latin America, to compensate for this. If the U.S. comes back in 2023, which I think it should, then I think we will do even better. On the infrastructure side, we never really raised a lot of money from U.S. Canadian investors to our infrastructure fund. infrastructure is a real asset, but it's not really an asset class that U.S. pension funds invest in. They're beginning to come into this asset class. So infrastructure fund five, around close to 10% of infrastructure fund four, fund three, or even less than that, comes from U.S. Canadian investors. U.S. investors, because of what I just said, and Canadians, they like to invest in infrastructure more directly, Canadian pension funds. So that effect that I just mentioned, the overcrowded market in the U.S. does not really affect our infrastructure fund in that sense because we don't raise a lot of money from the U.S. market, Canadian market. In addition, it's a sought-after product today because of the inflationary hedge, et cetera, et cetera. So I'm pretty positive on the infrastructure fund fundraising process as we go along. Dan, any additional comment there? Can I go to your second question?

No, very clear on the first question. Okay.

Okay, so now we go to deployment. What did we do here? And of course, there's the strategy and then there's the tactical part of the execution, right? We want to deploy. Last year, we deployed around 2.5 billion. And it was a very favorable moment for us to deploy because we saw on more of a tactical approach to deployment An overshooting of our devaluation of our currency, 560, 580 reais to the dollar. As I mentioned, answering Craig's question, I think it was a general pessimism, exaggerated pessimism with Brazil and Bolsonaro because of what he stands on COVID and et cetera. And we said, look, I think this is a very interesting moment for us to deploy. Now, valuations were depressed because interest rates were going up. Etc. Etc. So we had a very good year of deployment as we approach into 2022 We actually saw that no things were going to get it better and they did and the whole you know Uncertainty about the election be admissible. So now to be in the saluda would be over as it did as well And so look, I think this is a very interesting moment for us to divest. So we're trying to divest a lot of And I think as we do the divestments in the fourth quarter, mainly from our infrastructure funds and our private equity funds, I think we're hitting a very good exchange rates to take the money out and give back US dollars to our investors at 520, 514. And it's interesting that our private equity fund six, which is our latest private equity fund and an infrastructure fund four, which is our latest infrastructure fund, the returns in dollars is actually better than reais, which is not very usual. because of what I just said. We put money in at 560, 570 Reais. So the dollar now, the Reais is trading around 520. So we were also waiting in this quarter, to be honest, on what was going on with the election and what was going to happen after the election. Mr. Bolsonaro stands on passing the baton, et cetera. So we, to be honest, I think we delayed a little bit the signings of deals that we had in the pipeline. We turned papers a little slower than we could in order to get to understand what was going to happen. And now everything I think is fine. In our view, as I did answer to Craig, I think we're then coming back to the table to sign the deals that we had on the table. So we tactically, we did delay things a little bit over the third quarter. So very, you know, the strategy remains the same over the last 12 months we have deployed committed 1.4 billion we should finish the year with 1.5 billion 12 months 2022 1.5 billion right on target with where we gave you the expectation that we would commit 1.5 billion from our long-dated closed and funds private equity and infrastructure so we're fine there but tactically speaking micromanagement third quarter We did slow down the pace. We pushed the papers along a little slower. We turned the papers a little slower because of the election. And the third question, is that fine for the second question? Can I turn to your third question?

Just a quick follow-up on the second question. We saw that there was the impact from the end of the fee agreement in the infrastructure segment. Should we expect anything similar happening in Q4 or that that would impact the CERN EZ-1 or not?

Yeah, no, we don't expect anything in Q4. What we have in 23, and we'll go over that in more detail in our PACS day, December 5th, that we have a private active fund 4 finishing in June 23, a private active fund 4. finishing in June 2020. Again, a lot of micro management here. We can give you more details offline, but just answering your question very, very precisely. But no effect in the fourth quarter of 2022. Now I'll turn to Marco to answer your third question.

Hi, Ricardo. Hope everything is well with you. So regarding the financial results, I'll split my answer in two. The first piece on the non-GAAP measures on page 8 of your presentation, you're going to see that on the quarter, financial expenses is actually increasing by $100,000. And this is very much a reflection of the variance of the assets underneath PASCA that are substantially driven by GP commitments. So the mark-to-mark of the assets will drive some of that variance. If your question relates to the IFRS, and that's on the page 22 of your presentation, you will see that most of those expenses are driven by the M&A activity and are non-cash expenses. I will call the attention particularly to the one that is newer to this, because we have some of those expenses accruing as a result of the acquisition of Moneda. Some of them accruing further as a result of the acquisition of BBI. And then there is one particular line that stands for the SPAC, which is the market value of the warrants. Again, these are all non-cash expenses.

Very clear. And we saw there was an increase in the non-cash expenses looking at this quarter versus the previous one. Is it mainly to do with the VBI acquisition and respect that you mentioned, or is there another effect that it should take into account?

Precisely that.

Okay, perfect.

Yeah, that's precisely what it is.

Thank you. One moment for our next question. And as a reminder, to ask a question, you will need to press star 1 1 on your telephone. Our next question comes from Tito Labarda with Goldman Sachs. You may proceed.

Hi. Good morning, Alex and Marco. Thanks for the call and taking my question. A couple questions also. First on the performance fees, you mentioned you probably have some more visibility in the coming quarters to be able to realize those, and maybe more in 2023. But just to understand, anything in particular that you would be waiting for? Is it just more stability in markets? Is it any particular events? that you're waiting to be able to realize some of these performance fees. And I imagine primarily would be from private equity fund five and infrastructure three, just any color, so we can kind of think about the timing and how much you could potentially realize that you can give will be helpful. And then the second question, a follow-up actually on Chile. Just looking at the pension reform that was announced last night, they call for a public option to compete with the private fund managers. Just wondering if you have any more color on that, if that can create any potential impact for you there. Thank you.

Thanks, Chito. Thanks for participating in our call. Thanks for the questions. On performance fee, I think we're doing as planned, to be honest. I think we're getting in both funds that you mentioned, private equity fund five and infrastructure fund three. We see good realizations coming up. We are in the process of selling several assets. A couple of them, to be honest, are very close to signing or very close to closing, first signing and then closing, but at the valuations that we expected, that pushes us very close or into the performance fee arena. So sometimes it could happen that sometimes still this year, if I look into where we are in some of the sale processes of these assets, Of course, it might slip into beginning of next year as bureaucratically there's an approval of the potential buyer that falls into January or whatever. But I don't see any hiccups in the process. The process continues to actually go through what we expected, non-bindings and then the bindings. And for some of these assets that I mentioned, we already got the bindings, so now we're negotiating SPAs and et cetera. So going through, going down the process all the way to now choosing the final bidder, the final winner that will buy these assets and then sign the SPA, the sales and purchase agreement. So I'm happy with the process and again, I'm happy with the valuations and I'm happy with the exchange rate. Two of the assets actually, they have no dollar denominated revenues, but whatever, still I'm happy with the whole atmosphere. And going all the way back to Craig's first question, I think, of course, the election in Brazil, because these assets, one of these assets is very Latam, the other asset is more Brazil-focused, and the other asset is also more Brazil-focused. I think having the election results and having Mr. Bolsonaro pass on the baton peacefully to Mr. Lula I think also helps. I think there was nothing that would actually interfere, but definitely going all the way up to the investment committees of these potential buyers, I think it helps that everything is well and peaceful in Brazil. For your second question, I think it's a positive move, I think, from the Chilean government actually increasing the contributions from 10 to around 16 percent of the pension fund so in general the pie the amount of money that these pension funds will manage will be bigger and bigger is better than smaller like in mexico that went from six percent to twelve percent so it's bigger amounts and then these guys and these pension funds are our clients uh but we don't have a lot of detail i'll pass on to to to uh to marco here we don't have a lot of detail of what might go on and of course this proposal will have to be negotiated with Congress, and Mr. Boric has not been going through, right now, a very high popularity rate, and as you probably know, that his new constitutional amendment was rejected by the population, by over 60%. And Mr. Boric faces a very conservative Congress and Senate, which then, I think, This proposal will be so much negotiated, which is hard for us to say now between what he proposed and what will be accepted by Congress can be something totally different from what is there. But in general, I think what I see that everybody likes on both sides of the aisle, as they say here in the U.S., is a bigger pension fund system, more inclusive, et cetera, more competitive. They're all good things, Marco.

Thank you, Alex. And this is really no news from what Baric laid out in his campaign and his narrative about his intentions to do with the pension system. It came out last night, and we are over it, and we'll study it before having a reaction to it. I think the first note is, as Alex mentioned, it calls the attention that the system is going to get bigger, part of it being paid by the employer, part of it being played by the employee. And it will be very inclusive, so it's going to be very populist-driven sort of proposal. I'm not going to get into a lot of details on the outcomes on the economy, because that also has another side, which is increasing the cost of employment to the region. But the first look for the asset management business is increasing the bite. Still to be determined how much of this is going to be driven by the public initiative and by the private initiative, the proposal is not completely clear on that. Before even getting to further reaction, we will be paying a lot of attention on how the lower and upper house will react because there's been a number of radical proposals that in the region and in the country that have been simply rejected by the population and by the governors.

Great. That's very helpful. Thanks for all the details there, Alex and Marco. Thank you.

One moment for questions.

Our next question comes from William Barnard with the TAO BBA. You may proceed.

Hello. Good afternoon, Alex and Marco. Thanks for hosting the call. I have a question here regarding the public equities and the credit operations, so basically moneta operation here. So we would like to understand how you see the AUM evolution going forward, if you see the mood improving, especially for equities. And then if you see any performance fees for these operations for the next few quarters. Thank you.

Okay, yeah, definitely I see a better mood in general because, again, just having the election cycles over in most of the countries in Latin America, that's positive because people just turn their pages. Number one, having the rejection of the constitution in Chile, number two, having the peaceful transition between Mr. Bolsonaro and Mr. Lula, number three, and several other factors, I think, play into us being more bullish. on fundraising for this year and next year. In addition to that, reduction in interest rates in Brazil, that will probably happen in the second semester of next year, if the world situation permits Brazil to do that. From a Brazil standpoint, I think it's already showing that the central bank in Brazil can do that, and you know that the Brazilian central bank, over the last two meetings, did not raise rates. the same $1,375. I can add so many other comments here to my answer, which actually favors fund raising. And you probably know as well that I think in the month of October, we had the highest inflow in equity funds all over the world, $23 billion into listed equity funds. That's more of a global number. It's not just, I think, Brazil. I think in general, people are not trying to anticipate this comeback of the economies globally. But specifically, I think LATAM will come out first of this situation because it started first, the raising rates, et cetera, et cetera. And then the election cycle also being over also helps everything that I say. So we're bullish. And on the other side of the equation, William, is the reduction in the withdrawals. So one side is what you mentioned, which is fundraising and new money coming in. And the other side of the equation, which in the end is important for the net inflows, is the redemptions. And we saw basically the redemptions being halted after the new constitution in Chile was rejected by Chileans, of course, which that also helps the net inflows. It helps it positively. So inflows, good. Rejections stopping. Bullish on fundraising. For 23, I'll turn it over to Mark Rosen on more numbers.

Yeah, I think tying some of those to our presentation and what we laid down here, starting with the flows, what we saw specifically on the credit and equities is a reduction of the outflows. by about 50% relative to the previous quarter. That's considering that the rechasto, which is the rejection of the Constitution, came out only in the middle of the quarter. And that's a data point. I know we cannot call it a trend yet, but it's an important data point. Your important data point is the inflow coming from what you read as advisory distribution that is particularly driven by families, which are normally first movers. So I think we have a couple of data points to be positive on that trend. And finally, the other important data point is about the relative performance and the absolute performance of these two products. The high yield is performing phenomenally, and it's the flagship fund for the credit. It's over 10 percentage points over the last year, which is absolutely impressive in a world where credit is being hammered. And also on the equities, if you look at the the Chilean equities is performing in excess of 25% net this year. So all that contributes to the flows.

Yeah, the idea. The credit funding made 10% better than peers.

Correct. That's correct. And relative to your question about the incentives, and I'm glad that you made that question because I want to drive you through a simple method. It's quite interesting. If you look on page 13 of your presentation, you're going to see that the incentive fee accrued to date is $4.9 million. So the answer to your question is yes. We expect to see that kicking in in the fourth quarter. And if you go back to page 18 on your presentation on the earnings for the quarter, the year to date F.R.E. is on 94.6. The market consensus for the year is on 129. So that means that the gap for the year to go is 34.4. If you look at the current quarter, three quarters, we deliver on 31.7, and as we described earlier in this presentation, we expect this to be very consistent for the upcoming quarter. So if you just count that there is an additional incentive fee to kick in that we're showing you on page 13 there, it's accrued today to 4.9, we'll be ahead of the 50% guidance increase on the FRA for the year.

Thank you, William. That's really clear. Thank you, Alex and Marco, for the answer.

No, thank you.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Alex Tsai, CEO, for any further remarks.

Well, thank you very much for your patience here with us and participating here. And I hope to see you all December 5th for our PAX Day in New York starting 1230, Josh? Correct. South 30 December 5th in New York presently better, but if you can't do presently, please tune in online Very excited. I think we're know having most of the senior members of our team present we're also going to have a chance to Sit down and and and have a cocktail in the end of the day so you guys can have Talk directly to our senior leaders and and have more of an informal meeting by your end So we're doing our best here to deliver on the numbers here. We're excited that with all this volatility, we're still up 50% over last year. Excited with 2023 with everything that just happened in the region and mainly in Brazil with the elections. And excited with the performances coming up because of the biddings that we're having for our assets at our mark. So again, I hope to see you on the 5th, and I hope to talk to you soon and see you in person as well. Be well, be safe. Thank you very much.

Thank you, and enjoy your day.

Thank you. This concludes.

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