Patria Investments Limited

Executive Officer, Alex Tsai, our Chief Financial Officer, Anna Russo, and our Chief Corporate Development Officer, Marco DiPalito. And we are also joined by our Chief Economist, Luis Fernando Lopez, for the Q&A session. This morning, we issued a press release and earnings presentation detailing our results for the second quarter of 2023, which you can find posted on our investor relations website or on Form 6K filed with the Securities and Exchange Commission. Any forward-looking statements made on this call are uncertain. do not guarantee future performance, and undue reliance should not be placed on them. PATRIA assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve inherent risks, including those discussed in the risk factors section of our latest Form 20F Annual Report. Also note that no statements on this call constitute an offer to sell or 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 US GAAP. Additionally, we will report and refer to certain non-GAAP industry measures which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable IFRS measures are included in our earnings presentation. On headline metrics, PATRIA generated distributable earnings of $43.6 million, or 29.5 cents per share, for 2Q23, including fee-related earnings of $33.8 million and performance-related earnings of $10.7 million. We declared a quarterly dividend of 25.1 cents per share, payable on September 8 to shareholders of record as of August 16. With that, I'll now turn the call over to Alex.

Thank you, Josh. And good morning, everyone. In the second quarter, PATRA delivered excellent financial results for our shareholders, and we are also seeing accelerating momentum in key drivers of our business. Second quarter distributable earnings of $43.6 million, or nearly 30 cents per share, was driven by the predictable and growing base of fee-related earnings, and again, the positive contribution of performance fees from Infrastructure Fund 3. With fee-related earnings of $65 million year-to-date, we continue to see the outlook on track to reach our targets of $150 million in 2023, with more growth coming in the back half of the year. Performance fees have been a more regular contributor to earnings recently. And while we have not them every quarter, the 11 million generated in Q2 and 40 million over the last three quarters demonstrate the early stages of a performance fee realization cycle that can be a powerful driver of shareholder value over the coming years. Capital formation continues to accelerate with $1.9 billion in organic inflows through the end of the second quarter and more than $2.2 billion secured through Q3. If we include pending new AUM from the recently announced joint venture with Banco Colombia expected to close in Q3, total capital formation will reach approximately $3.4 billion year-to-date and nearing a cumulative 8 billion since the beginning of 2022, tracking towards the four-year cycle target of 20 billion by the end of 2025. While the fundraising environment remains very challenging in some areas, this is where platform diversification shines. With more than 30 products and counting, PATRIA enjoys many vectors for growth as we still see the path to reach our target of $5 to $6 billion of organic inflows in 2023 across all products. Looking specifically at our drawdown funds, we also still believe we can achieve the previously noted $6 to $7 billion in fundraising over this vintage cycle, through a diversified product offering, including our flagship private equity and infrastructure funds, as well as newer strategies like growth equity, venture capital, infrastructure credit, and private credit. We also continue to diversify our sources of capital, harnessing the financial deepening in Latin America to raise more money locally. We have been successful in Brazil-focused products, with AUM growing more than threefold since our IPO, and in Chile with the addition of Moneda's platform. We are now seeing the joint venture with Bancolombia provide a new anchor in Colombia. We are carefully moving forward with our strategy for our presence in Mexico. We expect that 2 to 3 billion out of the 5 to 6 billion inflows target for 2023 could come from Latin American-based investors. The earning AUM growth of 8% since last quarter and 15% over the last year is also a testament to asset class diversity with permanent capital real estate and liquid public equity strategies leading the way. Put simply, This doesn't mean our strategy is changing. It means it is working. We're also seeing traction on divestment with a transaction for delis and block sales of Smart Fit in Private Active Fund 5 during Q2. Over the last 12 months, our flagship funds have secured proceeds of approximately $2.2 billion for fund investors, delivering a multiple of 2.7 times invested capital on these investments in US dollars. And finally, in late June, Patria was added to Russell 2000 and 3000 indices, an important step in our journey as a public company, which expands our exposure across the investment community, positive catalyst for our investment profile moving forward. So overall, a great quarter for the business. But importantly, we also see positive sentiment building around the regional macro story, a result of structural factors as well as timely economic policy actions. Latin America has long enjoyed the benefits of low geographical risk and richness of natural resources. Now, with war in Eastern Europe and growing US-China tensions, The region is benefiting from its neutrality and stability within emerging markets and trends of near shoring and friendly shoring are certainly constructive. The comparatively lower indebtedness of individuals and companies in the region allowed governments to preemptively tighten monetary and fiscal policies to combat inflation starting in 2021 which also helped mitigate adverse shocks from abroad. Sharp disinflation for several months have now paved the way for cuts in short-term interest rates, and countries such as Chile, Uruguay, and Costa Rica have already embarked on cycles of monetary easing. Brazil is expected to follow them in the third quarter. A scenario of stronger fiscal positions, decreasing inflation, and comparatively higher interest rates led to substantial carry gains in Latin America, with several regional currencies being global top performers versus the U.S. dollar in 2023. An important institutional factor too frequently overlooked is the effectiveness of checks and balances in the region. Most of recent Latin American elections resulted in left-leaning presidents, but without their coalitions holding a congressional majority and with an independent judiciary in place to limit their discretionary powers. Against this backdrop, we have indeed seen the necessity of moderation in proposed new legislation and the tax reform efforts moving forward in Brazil are a good example of that. Progressive administrations are still committed to delivering ambitious social agendas, but they must preserve fiscal and monetary discipline while building an enabling environment for private investment. Accordingly, markets are upgrading Latin American economic growth forecasts for 2023 and beyond which is driving asset appreciation. That translates to a backdrop that is constructive across each phase of PATRA's investing cycle, fundraising, deployment, value creation, and divestment, although factors can impact asset classes differently. In private equity, making progress on divestment was critical as we entered 2023, and we are indeed seeing results. So far this year, Private Equity Fund 5 has completed the NASDAQ listing of Lavoro, a leading agricultural inputs business, completed two block sales of Smartfit, the well-known fitness company, and also signed the transaction for the sale of Delis, our food distribution platform, where another financial sponsor will partner with Patras Private Equity Fund 7 to support this company's next phase of growth. The divestment pipeline continues to be very active, and we think the improving macro backdrop can be a solid tailwind in the second half of the year and into 2024. On the fundraising side, we continue to make progress in private equity with more than 360 million of inflows in Q2 between the newest flagship private equity fund, the first closing in the next vintage venture capital fund led by the team from IGAR, and the recognition of Camaro Pins legacy growth equity funds following the closing of the second trench of that transaction and Patria's full acquisition of the platform. The structural challenges in the private equity space remain, however, particularly in the US market. Although we are seeing upside in other parts of the world, like Asia, the Middle East, and Latin America, the headwinds will likely impact the size of this flagship vintage. Should we ultimately close this fund under our target, we expect a diversification into growth equity and venture capital to help compensate in the short term to reach the six to seven billion target for this overall drawdown fund vintage. And note, these funds carry a similar structure to the flagship funds. Looking forward, a solid investment pipeline should also bring us back to the market for the flagship fund sooner than the typical cycle. Turning to infrastructure, As we indicated last quarter, we are completing the initial closings of our newest flagship development fund with approximately $550 million secured as of today. With $350 million closed in Q2 and another $200 million secured in early Q3, we continue to be optimistic about the momentum here and expect to reach roughly a billion mark by the end of Q3, representing approximately 40% of the fund's cover target. The $11 million of performance fee-related earnings in Q2 was generated from Infrastructure Fund 3, and as of quarter end, this fund remains five active investments and nearly $130 million in net accrued performance fees. And remember, the realization impact is enhanced in this initial catch-up phase as the majority of commitments are subject to 100% catch-up, which enhances our performance impact until we reach our 20% share of the cumulative investment gains. Out of the current $130 million accrual, the catch-up phase will account for approximately the next $60 million of realizations. In credit, encouraging trends continued as the redemption pressure we saw during 2022 has faded. As net flows were positive in Q2, our credit platform achieved scale with the acquisition of Moneda in 2021. And while I usually highlight the flagship high yield fund and its phenomenal long-term track record, it is important to note the increasing breadth of this vertical. The benefits of our diversification across PAN and LATAM, Brazilian and Chilean strategies, hard currency and local currency strategies, further expansion of private credit and soon infrastructure credit, means multiple vectors of growth and the ability to capitalize when certain strategies are in high demand. For example, our local LATAM strategies has delivered outstanding absolute returns over the last year, enhanced by currency performance against the dollar. The main LATAM local currencies fund delivered a 12% return just in Q2 and 27% over the last year. Our Chilean fixed income strategy has also seen strong inflows and performance, returning more than 10% over the last year and now seeing its AUM top $500 million, we have launched our locally focused credit 365 product in Brazil and continue to work towards our formal first close of infrastructure credit, which already has backing from multilateral agency as anchor investors. On public equities, Our funds have a phenomenal quarter in terms of both inflows and fundraising, as the improving sentiment in the region drove capital to both the large and small-cap Penn regional products. Inflows were nearly $370 million in Q2, and net of redemption activity, we were up nearly $290 million, including the strong market appreciation Total and fee-earning AUM were both up 23% in Q2 alone, fully recovering from the pressure seen in 2022 to reach a new high mark. And in real estate, our major story was of course the announcement of the new joint venture with Bancolombia, which is expected to close in Q3. And I'll allow Marco to give more detail on that in a moment. But there were also strong inflows in the quarter of more than $300 million driven by VBI, our real estate platform, as they continue to expand their platform in Brazil. Real estate is an asset class where we really aim to gain scale over the next few years. And indeed, the AUM has grown from $400 million at the end of 2021 to more than $1.8 billion today. With the incorporation of the new joint venture with Bancolombia, AUM will nearly reach $3 billion in the coming months and more to come. To summarize, Q2 was another solid quarter of results for our shareholders. We are executing our growth plans amid an improving macro backdrop that is positive across our investment cycle. And our 2023 targets for fee-related earnings and fundraising remain well in sight. Let me now turn things over to Marco to talk about our latest corporate development views, and then Ana to walk through the results in more detail.

Thank you, Alex, and good morning, everyone. Expansion of product offering. Geographic expertise and distribution capabilities are the three pillars of our corporate development strategy, and the joint venture with Bancolombia announced a few weeks ago touches each aspect. Not only are we bringing 1 billion of permanent capital AUM to the real estate platform, but we are expanding that afterclass into the Colombian market. and we are gaining a distribution partner that can help us reach Colombian investors with a broad suite of alternative investment products. PATRIA will contribute capital into the joint venture over a multi-year period to fund operations and GP commitments to fund, meaning cash consideration is quite minimal upfront. To help you frame the immediate impact, we've disclosed that PATRIA will have 51%, and thus controlling ownership in the JV. Assuming $1 billion of fee earnings AUM earning typical market rates and a similar FRA margin to PATRIA, you will calculate an annualized fee-related earnings contribution of a few million dollars after adjusting for the JV ownership. While that's certainly a positive, And we believe there are further REIT consolidation opportunities in this market. The long-term vision for this partnership is the broader facilitation of alternatives products to the local investor base across multiple asset classes. Bancolombia is the country's largest bank by asset and shareholders equity. It has been serving clients in Colombia and Central America for nearly 150 years, giving them a tremendous depth of relationship with companies and investors and the brand power that we view as unmatched in the country. We believe the financial deepening in the region is real and poised to accelerate further with interest rates trending downwards. leveraging Bancolombia's client base and distribution capabilities and PATRA's expertise in private markets and alternatives. We can provide access to PATRA's existing diverse offering of regional products and also design new alternative products tailored for the local market in the local currency. We're very excited to move this relationship forward following the expected closing of the transaction in Q3 and confident it will be a driver of platform growth and accretive to our shareholders. We've been successful in leveraging the financial deepening in the region in both Brazil and Chile, and now Colombia. As we look to the remaining countries in the region, we believe Mexico continues to be the next logical country for geographical expansion. and we remain active in pursuit of deals. On another front, as much as we acknowledge that the financial deepening is generating solid interest for private markets in the region, it also does on a global scale. In fact, PATRA already manages more than $1 billion of Latin American capital through feeders to global alternatives. And we are actively pursuing opportunities to expand our capabilities on this run. We hope to have more to say on this theme soon. Let me now turn to Ana for further details on the results.

Thank you, Marco. Good morning, everyone, and great to be with you again. After delivered distributor earnings of $43.6 million in the second quarter of 2023, equivalent to nearly 30 cents per share, and generating a dividend for shareholders of 25 cents per share. Year-to-date, we have now delivered a D of $82.8 million, which is up nearly 30% from the same period last year. For an investor who bought past shares at the beginning of the year, the fourth quarter 22 dividends paid in March, combined with Q1 and Q2 2023 dividends, already amount to a yield of well over 5%. with the Q3 dividend is still left to be paid during 2023. Let's now look at how the D is composed. Our consistent management fees were $61.6 million in Q2 23, up 11% from Q2 22, driven by both organic and inorganic fee AUM growth. As the second half of the year unfolds, We will see a more relevant increase with new deployments of the drop-down funds and expiration of few holidays for our latest vintage private equity fund. Note that for the latest vintage flagship fund, we can generally collect retroactive management feedback to the C ignition date on additional closing. On the expense side, personal expenses were $16.8 million in the second quarter 23, flat compared to the first quarter and up 7% compared to last year. Together with administrative expenses, operating costs were up 9% compared to the second quarter 22, reflecting the acquisitions of VBI, IGA, and Kamarupi, as well as inflationary pressure on salaries and expenses of around 4%. As a result, our fee-related earnings were $33.8 million in Q2 23, up 9% from Q2-22. Second quarter, FRA margin of 56% is in line with prior year and ticked up slightly from the first quarter. Year-to-date fee-related earnings were $65 million, and as we suggested in previous quarters, reaching our FRA target of $150 million for the year implies a stronger growth on the second half of 2023. with margins expect to move higher within our general range of 55% to 60%. We generate $11 million of performance-related earnings in the second quarter 2023, which is effectively an incremental true-up from Infrastructure Fund 3 based on the final net proceeds realized from the assets of Vodata and Entrevista. Net accrued performance fee rose to $472 million at June 30th, which is up 8% from both the prior quarter and a year ago, adding back the $40 million of performance fee realized over the last 12 months. The implied increase in the net accrual would be closer to 17%. Note that in the disclosure of the composition of the accrual, we have now added approximately $10 million related to Camaro Pins Legacy Funds, following the closing of the second trench of the transaction. Turning to asset under management, total AUM grew to $28.2 billion, an increase of $.9 billion versus prior quarter, and up 7% from one year ago. The quarterly rise in total AUM is driven by new inflows of $1.5 billion and positive valuation. mainly driven by share price of publicly traded portfolio companies and foreign currency impact of 1.4 billion, offset by 2.1 billion of outflows. Notably, 1.7 out of the 2.1 billion outflow is from divestment in our drop-down funds, which are, of course, a positive aspect of our business cycle. The earnings AUM rose to 21.6 billion, up 8% from the prior quarter, and up 15% from one year ago, adding nearly $3 billion as it crossed the $20 billion threshold for the first time. The growth from last quarter is driven by nearly $1.2 billion of inflows led by public equities and real estate. Remember that Q2 will not include the normal biannual adjustment for the drawdown fund that we typically see in Q1 and Q3. The growth was enhanced by more than $700 million of positive impact from valuation and currency appreciation. As we look to the second half of the year, I will reiterate that we expect a rise in quarterly fee-related earnings driven by multiple factors, along with a slight increase in the margin, in order to achieve our $150 million fee-related earnings target. As you know, we don't offer short-term guidance of performance fee without clear line of sight. But I want to echo our investor day targets estimated to amount a cumulative $180 to $300 million through the end of 2025. Given that only Infrastructure Fund 3 is actively in the realization phase today and Private Equity Fund 5 is still working towards that threshold, it's likely that 2023 realizations will be lower than the next two years. Let me now turn back to Alex for some final remarks.

Thank you, Juana. To close here, we believe that PATRIA is the premier gateway for alternatives in Latin America. Our business was born in the region, and we have honed our investing strategy for more than 30 years of experience on the ground. We believe PATRIA is the reference trusted partner for sophisticated global investors who want to allocate capital to alternatives in the region. We also believe we can facilitate the development and adoption for alternative products for local investors in the region and be a conduit for them to access alternative investments globally. Our growth strategy is built around those pillars, and we communicated ambitious goals at our investment day last year. We are now on our way, and I continue to have confidence in our ability to deliver. We thank all of our stakeholders for your support, and we are now happy to take your questions.

Thank you. We will now conduct a question and answer session. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.

And our first question comes from Craig Siegenthaler with Bank of America.

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

Hi, Craig. Hi, Craig. Thanks for participating in the call. I'm here with Marco and Anna. All well here. Thank you.

Great. So my question is on fundraising, and I wanted to come back to some of the comments you made around PFund7 in the prepared remarks. What do you think are the two biggest challenges that you're facing with respect to raising the buyout fund?

Thanks, Craig. This is Alex here. Well, I think first and foremost, the general feeling and results actually for fundraising for private equity has not been as it was, I think, pre this whole inflationary issue, mainly in the U.S., So, as mentioned in prior earnings calls, I think we, for this specific fund, we are underperforming in the U.S., and for this fund in particular, the U.S. market was an important contributor of around a third of the fund. We are managing to overperform in other markets, as also mentioned in other calls, like, and more specifically, the Middle East, including Israel. Asia, and Latin America. Very much surprised with the Latin American interest for this fund. I think investors see the monetary cycle here easing in Latin America, as mentioned in the macro part of my little short speech there, and that they want to actually come into products that have very, very high returns like ours, Private Equity Fund 7. So all in all, in order to compensate for the large group of investors, the North American investors, mainly U.S. and Canada, less Mexico, which again accounted for a third of prior funds, we have to really overcompensate the other regions. We're doing that, but I think as of today, we had, I think, the target of reaching around two and a half, three billion for this fund. I think that it's more realistic to see the number two and a half now. And also, I think we have a composition of other products that kind of eroded some of the demand for that. You know, growth equity kind of competes with private equity fund seven. Some investors, mainly the endowments and some smaller institutional and family offices, they like the risk-return profile of growth equity, given that our flagship buyout private equity fund became more mainstream, which is fine. It's a cannibalization that happens internally. Both funds are 2 and 20. Both funds are drawdown funds. Both funds are 10-year tenures. So it doesn't really matter for us, but we see some cannibalization there. also going on. Some of our investors were actually asking for a product like growth equity because as our flagship fund got bigger and became more mainstream, they wanted to invest in that segment of the private equity market in Latin America. Our venture capital fund, I don't think it really competes with our flagship private equity fund, but the growth equity fund does and cannibalizes some of that demand. So when I add the underperformance in the U.S. because it's a tough market out there. You read the reports. I'm saying here what I read. I haven't gone out and checked the numbers, but some of the big consultants in the market say that every $3 in the U.S. chasing money in the U.S., one will be raised. So it's not a PATRA-specific thing. I think it's a market-specific thing. What is the good news about this? We managed to build our Latin America local-based distribution capabilities out of the $5 billion, $6 billion being raised this year organically. Two to three, no, closer to three actually raised locally from Latin American investors. That's a major number. Normally we did, now if you look at Patra's past, 80% of our fundraising came from global institutional investors, and of course the number was a lot smaller than the 5 to 6 billion. Now it's half and half, and we're still growing in these countries in LATAM. We still have to increase and strengthen our base in Colombia. and also strengthen our base in Mexico. And this number, two to three billion, basically is coming from Brazilian and Chilean investors, 95% from Brazilian and Chilean investors. Some Peruvian investors, but a small part of that, but nothing much from Colombia and Mexico, which if I add Colombia and Mexico, basically doubles the market there. So I'm very excited about this opportunity, which is then compensating the fact that we are four private active funds, seven underperforming in the U.S. But overall, Greg, I don't think we'll get to the $3 billion. I think we'll get more to the $2.5 billion. I see the upside of the $2.5 billion is still possible. And also, if we add the other products that are being raised within the private active vertical, like growth equity and the venture capital fund, which both are doing well, then I'm going to continue to have a very strong 10-year three products, two 120, private active vertical there. I hope I answered your question.

Thank you, Alex. Very thorough. For my follow-up, I wanted to hit on the expectation for timing and size for INFRA 5. And I think in the prepared remarks, I heard that you already raised $550 million to date, although I don't think it had a first close just yet because it's not showing up on slide 17. But my question is, do you think INFRA 5 will be significantly larger than the $1.9 billion of Fund 4 at this point, just given results to date with P-Fund 7?

Yes and yes, going straight to the answer here. We did have a first closing for Infrastructure Fund 5. I don't think it was well communicated, but yes, that first closing happened already. $330 million in the second quarter, another $200 million in the early third quarter, $550 million, and we have already secured, because secured I mean when Our investors have already gone through all the approvals. We are finalizing negotiations of the LPA. But as it is a re-up, because it's investors that have already invested in prior funds, the LPA, the Limited Partners Agreement, is very well known for them. So that's why I did say in my earnings call here that now we're going to get to the $1 billion agreement. Now, first close, because normally a first close is one investor gives the papers back to us one week, the other investor gives the papers back the other week, whatever. But within this month, we get to the billion, which is 40% of $2.5 billion. So the $2.5 billion is the answer to the second part of your question. I can see the 2.5, which is higher or larger than the 1.9 for private equity. Sorry, sorry. Infrastructure Fund 4, 1.9. Infrastructure Fund 5, 2.5. And I see an upside there. Things are doing so well for our infrastructure. franchise here. One of the consultants' reports that I mentioned a couple of minutes ago, the headline of this private active fund and infrastructure fundraising report of one of these consultants says, DPI is the new king. And that's what our team has been doing on the infrastructure fund. They have really sold so many companies at such great valuations. giving back so much money to the investors. Investors of our infrastructure fund three, in reais, they're over two times their money. In US dollars, over 1.4 times their money. And there are other exits that will happen in 2023. So more money is going to go back to investors of Infrastructure Fund 3. I think we'll have good news also in Infrastructure Fund 4. It's not going to reach, of course, the performance bracket because we have to deliver all the capital back invested in that fund, but we're beginning also to divest assets from Infrastructure Fund 4. So all of this divestment, that means DPI, and as this consultant mentioned, DPI is the new king, helps on the fundraising. Plus, it is a product that has an inflationary hedge embedded to it, as you know. So all of this contributing to us being optimistic on the 2.5 and now seeing an upside there. So when I look at the 2.5 from the private equity, and then I look at the 2.5 with an upside on the infrastructure side, it's 5 billion plus. And then I have all of these other credit products, private credit, infrastructure credit, So that's why I come back and I say that I'm confident in saying that the $6 to $7 billion drawdown funds target will be hit because of the numbers that I just gave you. And also on the credit side, we're seeing great momentum on private credit, on infrastructure credit. private credit we have a LATAM private credit product on the road we have a local Brazil private credit fund and two on the roads being fundraised private credit the Brazilian private credit fund one did delivering extremely good returns with very very good no credit credit securities, no defaults, an amazing product, really an amazing product, and we're having a lot of re-ups for our Brazilian private credit fund too. So I'm optimistic on the private credit side. So if I add the 2.5 from the private equity side, the 2.5 with an upside from the infrastructure side and all the other private credit products, which are all drawdown funds. That's why I see the $6.7 billion drawdown funds for this vintage being met. I think I answered all of your questions. If not, please help me here.

No, that was great. Thank you, Alex.

Thank you.

Operator, should we go to the next question, please?

Our next question comes from Tito Labarta with Goldman Sachs.

Hi, good morning, Alex, Marco, and Anna. Thanks for the call, taking my question. A couple questions. I guess, can you give any more color on, are you able to realize any more performance fees for this year, particularly, I guess, for mean forefront three? That caught us a little by surprise, you know, positive surprise, obviously, but just to understand. how much more you can potentially realize in the short term, both from Infrafront 3 and overall. And the second question, good performance, I guess, on the public equities and real estate side, particularly going into a lower interest rate environment. Obviously, valuation benefited, but also we saw good inflows there with limited outflows. Can you give some color how you see that shaping out for the rest of the year, particularly we saw the central bank in Brazil cut rates last night, Are you seeing more interest in those verticals? Thank you.

Yes.

Hi, Chito. Thanks for the question. Thanks for participating. yes i think on on the uh on overall on the performance fees i think we're uh you know we continue to see the 180 million dollars for the next uh three years including 2023 which we know gave us as a guideline during the pax day late last year so what we see there i think we For Infrastructure Fund 3, there are divestments going on and very interesting valuations that we'll be able to get for these assets. And once we sell these assets, it contributes 100% to our performance fee because we are in the catch-up phase. So I see news coming from that front, which is the more short-term news coming there. On the private equity side, we are also distributing in kind some of our listed products, listed securities there, and that generates a performance fee there. So that's what we're looking into for the second half of this year. And that's assets of our private equity fund five. Also, because of the appreciation of the listed securities in private equity fund five, mainly smart fits, so we see a lot of divestments still going on for the second semester. Also for infrastructure fund two, but that is not going to generate any performance fee in the second semester. In this order, infrastructure fund three continues to be the main driver of performance fees in the second half of the year. Divestments going on as we speak. We're selling assets that are still in that fund. We have five remaining assets in that fund. Proposals are coming in. We have organized processes, and we're moving ahead, and that's why I'm comfortable that we will continue to deliver on performance fees this year and overall for the $180 million that I mentioned during our PAC stay. Second comes Private Active Fund 5 with these distribution in-kinds. The distribution in-kind does generate performance fees the way that we are structuring it. So that also could be a positive news in the second half of this year or early 2024. And then comes all of these other divestments that we're doing that will not generate performances for this year, but is building in, as you know, we have European CARE, is building in the direction of generating performances for next year, 2024 and 2025. So things around here did change, as you know, Tito, during the first semester. We are kind of in a weird week, right, where the Brazilian government debt gets an upgrade from the rating agencies and the U.S. government debt gets a downgrade from the rating agencies. It's kind of a unique week, right, where inflation in Brazil is lower than the U.S., slightly lower than the U.S. last 12 months. And interest rates in Brazil and Chile are falling while in the U.S. they're rising. So it's very unique. Those moments in time when you and I, I think, have been around for a while, you look back in history and we haven't found a lot of these moments, right? And so that benefits going to your second question, all of our fundraising activities, right? Investors want to position themselves. Look at the returns of our funds that I mentioned during my earnings call today. 20-something percent up in our equity funds, LATAM large cap, LATAM small cap, Chilean small cap, Brazilian small cap, over 30% up this year. If you add that, the strengthening of the Chilean peso and the strengthening of the real, you're talking 40-something percent returns in the first semester for these funds. And our credit funds, 20-something percent returns in U.S. dollars. And it's pretty strong returns. And that, of course, drives fundraising and stops redemption. We saw redemptions for our public equity funds and our credit funds in 2022. And redemptions for June 30th for our products went to zero. And we know because redemptions come in for the next quarters. And for our credit funds, they're basically zero. And inflows come in redemption zero or close to zero that means no more money for us and that then for these products, you know that as now when they hit our our bank accounts, they are fear earnings AUM, right and Then when we look into the second quarter, I think there's still a lot of space for valuations to go up so no cautiously optimistic on that side, which is the second part of your question and So yes, that's why I go back to you guys and say, look, we see as good news here that we're going to get to the $5 billion to $6 billion organic inflows for this year. Coming from these products that I just mentioned, also I think we're seeing a good momentum for our mainly Chilean institutional clients willing to invest in hard currency, alternative assets, that we also have that business, which is an advisory business, which is pretty interesting for us as well. So the mood changed. The mood changed over the last two quarters. And I think Marco wants to add something here.

And just tie one question to the other, the performance and the performance fees and the environment. The recent currency appreciation plays in our favor. It was already present in the second quarter and even more so in the beginning of the quarter. Because as you know, our business on the FRE is mostly dollar denominated. On the PRE, currency plays a role both on the performance and on the performance fee. So things moving to the right direction and the region benefiting from this economical cycle, we also have a benefit not only by the organic growth of our funds, the natural IRR, but also the currency, which accelerates the hurdle rates, accelerates the catch-up phase, accelerates the carry to be received on the funds that are eligible to pay carry.

Okay, that's great.

I hope we answered your question.

Yeah, no, very helpful, very good color, and hopefully it's a good time for Brazil and LATAM, given they were a bit ahead of the curve here, so we'll see how it goes. Thank you. Thank you. Thanks for participating.

One moment for our next question. Our next question comes from Ricardo Buschbeigel with BTG Pactual.

Good morning, and congrats on the solid results. I have a couple of questions here. First, can you please give us an update on more details of the levels of inflows in the liquid strategy? that we should expect in the following quarters going by each product and what products should benefit the most with the impact in the Chilean interest rate cut. And also for my second question, do you believe that right now is a good moment to accelerate the consolidation of the Latin Asian management industry? And you mentioned Mexico to be an interesting region to tackle. If you could also comment what product would make sense to add to your platform would also be helpful.

Thank you.

Of course. Thank you very much, Ricardo. Nice talking to you. And, well, we have, I think we're cautiously optimistic on the fundraising for our liquid strategies. We saw good fundraising momentum in the second quarter for our public equity strategies. We have large cap LATAM. Small cap Latam. Small cap Latam, we're actually reaching a point that we might even close the fund for a while because, you know, we were managing X amount of dollars there, $150, $200 million. We reached $500 million in basically 60 days, the last 60 days of the second quarter. So, you know, good momentum on the inflows there and on the large-cap Latam the same, and then the Chilean strategies, we have large-cap Chile, we have small-cap Chile, and we have pipe in Brazil. All of the performances have been, as I mentioned a couple minutes earlier, 20% plus in local currencies, and then you add the strengthening of the Chilean peso and the Brazilian real. It's really impressive, and of course, that drives the fundraising momentum. I see that momentum continuing in the second half of the year, yes. It's hard to say exactly a number, but overall, I think the $5 to $6 billion number that I mentioned earlier in the call for organic fundraising for the year should be met between the drawdown funds. We have fundraising for our flagship drawdown funds going on, infrastructure fund five and private equity fund seven mainly, but also growth equity and venture capital and also the private credit funds like infrastructure credit and the Brazilian private credit fund. we add everything the five to six million dollar I can go I think with you I think it's more effective and productive to go offline we sit down with you and we'll go product by product given that we have no 30 products I don't want to know really take your time here and the other part part of the audience today but we more than gladly can do that with you right after this call but the momentum looks good Ricardo and And on your second question here, yes, I think we had this contrarian view. And you guys, I can only thank you guys for supporting us when we did go public late, when we were thinking about going public late 2020 and we went public early 21. That was a contrarian view, Ricardo, of actually us. speeding up the consolidation by now raising money. We do not sell anything, as you know, in a primary issuance of shares and consolidating this market while Latin America was going through this, the world, but Latin America specifically through this kind of a hard phase of high interest rates, high inflation, high interest rates, leftist governments, you know the whole story. And we've been around for a while, since 1988, when I'm one of the founding partners. It's been 35 years in September. We saw this film so many times. It's like watching Godfather III. I know what the actors are going to say, right? And I know, let's position ourselves here, and we have to consolidate this market as soon as possible. I think we... We moved into Chile in an amazing right moment. We moved into Colombia, I think, in the right moment, because Colombia is a little bit behind the curve on handling inflation and handling interest rates then, and also the issues that is going there with petrol. But I see we see the sound economic fundamentals of Chile specifically, Brazil, and I think we're now beginning to see that the benefit of the execution of the strategy. So we're head on and continue to do exactly that. We need to build a big business in Colombia and even bigger in Mexico. I think we managed to join ourselves with the largest and the most successful distributor in Colombia. Bancolombia, as you know, is the federal bank, 146-year-old, was privatized five, six years ago. 80% of Colombians do have a bank account with Bancolombia, and they have a 60% market share on all transactions, including distribution, private banking, and whatever. And we are now very happy with this JV that can really speed up our fundraising for local Colombian pesos products for local Colombian investors, as we did in Chile very successfully. Our Moneda partners did an amazing job They are the establishment in Chile. I think we're doing this in Brazil. We tripled our EOM in Brazil of Brazilian reais for Brazilian clients. We're going to do the same thing in Colombia. I think speeding up this because of the JV with Bancolombia. And we have to do it in Mexico. So there's still highways and vectors of growth for Patria because we haven't even started in Colombia. We just signed the JV. We have to close the JV. And then probably in 2024, we're going to start fundraising there. And Mexico is a huge market with all the friendly shoring and nearshoring, and I'm optimistic there. You probably know the numbers. Now, if you add just pension fund money in the region, it's around $800 billion, and they're all growing at double-digit rates because the contributions have been raised by these governments and projections that in five to seven years, this number should increase by 1.5 times. So from 800 billion to 1.2 to 1.4 trillion, depending on the projection on the analyst. When you have clients with a net inflow of money, which is what I just described, that's even better because clients are then open to new ideas like alternative products. And when you have with that lowering your interest rates, clients are even more open to try new ideas because they have to, right? And you know that the federal bond here in Brazil, the famous is now at five and something percent, six down from seven, seven something, That's the number, the magic number that pension funds start thinking on diversifying their investments in any way because they have to, right? Because of their actuarial liabilities costs. So I think it's, again, if things continue to play that way, as it did in the first semester, I'm cautiously optimistic. And yes, we have to continue to consolidate this market. This is why we went public.

Thank you, Ricardo.

I was just addressing, Ricardo, your questions on what products to add and timing about the M&A. Maybe this is a good opportunity to use the Bancolombia deal to respond a little bit and to give a little bit of visibility on how we think about our expansion. And we've been saying that since the IPO, the priorities that we set on our inorganic program are set to expand our channels, our geographies, and our products. And a partnership like the one we announced with Bancolombia addresses the three of them. We already had a presence in Colombia since 2014, and with over 2 billion on the ground and successful cases there. And with a partnership with Bancolombia, that is a player that has nearly 50% of market share with over 25 million clients on the ground. It's definitely a good way to get the boots on the ground in a different strata of the market, not only on the client side, but also on the business community side. So definitely that gives us in-depth boots on the ground in terms of geography and in terms of channel, because it gives access to the type of clients and a distribution power that we wouldn't have otherwise. In terms of product, what we're doing, the first product that we announced with the joint venture with Bancolombia is a local real estate, local REIT, which is permanent capital. It adds a billion dollars of permanent capital, which is in sync to what we have been saying about where our priorities are i think you can take this as that definitely a priority you know the permanent capital real estate in other countries in latin america and brazil and we're going to continue to foster this type of strategies that may result in acquisitions and mergers or in joint ventures like the case here in bancolombia to really take us to become present in every geography, in every aspect of the alternatives in the region. We spoke about Mexico being a priority. Chile continues to be a priority as well. And in terms of timing, motivation, why counterparties partner with us, are generally and very much centered on the fact that we have a fundraising, a powerful fundraising capability, and by joining forces with us, it's just catering for new money into the system. These are normally parties that want to continue to work with us, want to become part of a bigger platform, benefit from a platform. So those are motivations that stick very well in a conversation where where you're aiming to invite other partners to be consolidators in the region. And, of course, there will be the local markets. We spoke a little bit about the local markets and how the local markets are evolving and how things are improving here. That has not fully reflected. I think there's still a way to go there. But that definitely... will bring some impact to the strategy and we will navigate accordingly. So, hope I answered your question.

So, very clear. Just a quick follow-up here.

How much of your liquid funds you charge based on NAV and then the fee earnings AUM should benefit from all this positive mark-to-market that we have been discussing?

I'm guessing here I'm going to have Marco answer the question in more detail. If not 100%, most of our funds, liquid strategies charge on NAV. We're checking that information, but if not 100%, Ricardo... Is it 100%, Marco?

So I think the best reference you have, Ricardo, is on page 14 on your presentation where we provide an overview by asset class. And you can take the line which says public equities and the piece where you read credit open evergreen funds. that is on the C modality that you just described on NAV. And then the others will be the drawdown modality.

Very clear. Thank you.

Oh, thank you. One moment for our next question. And our next question comes from Yuri Fernandez with JP Morgan.

Good morning, Alex, Ana, and Josh, Marco. I have a first question regarding your performance this quarter. I guess Marco mentioned FX benefiting a little bit, and I think Alex and the presentation mentioned ODATA and Entrevias sales. So my question here is on Entrevias. I guess you had about 45% stake on the company, so just checking if you sold this additional stake now or and if not if you didn't sell it when you plan to sell these interviews is taken how much you believe this can help you on further performance issues that's the first one and I can I can have another question after you answer this one thank you hey Yuri how are you thanks again for your for your coverage there no I did I did read your your report and let me

Yes, why did we have performance from deals that were already announced, right? And we did not sell an additional portion of Entrevias or an additional portion of any other assets from Infrastructure Fund 3. What happened here was that we conservatively projected some of the accounts that you actually do Close just at closing date and I'll give you an example here So now we sell the company for X and there are some slight adjustments like no working capital The actual debt because then it depends on how much cash the company generated between signing and closing So they are minor adjustments that we do at closing now we we normally what we do we are conservative on those assumptions and in order to lower the price sold, the equity value. Because, you know, of course we have our projections, we are confident that things are going to go our way on working capital and cash flow generation, but we are conservative. So the performance fee that we announced on the sale of ODATA and Entrevias did take into account conservative assumptions for working capital and the indebtedness of these companies at closing. When things came to closing, we were right. We had a little upside on what we needed to leave on the table there for working capital needs of those specific companies. We were also on the upside there. The debt was a little lower than what we expected because the company generated a little bit more cash between signing and closing. And all that, of course, contributes to Now, the price is the same now, of course, but it raises the equity because it has less debt, so more equity. And that actually contributed to more performance fees. So the actual price of the company basically is the same. but we had a little less debt, a little bit more equity, and that actually went straight into our Infrastructure Fund 3. And as we are in the catch-up phase, now 100% of what comes into Infrastructure Fund 3 comes to the general partner, we did then... managed to have additional performance fees that so we do not sell additional parts of any assets was this between signing and closing adjustments which were positive adjustments for us again ten million dollars out of the 1.8 billion that we sold slight adjustments but were on the positive side what I mentioned I think when when answering one of Craig's questions earlier today was that we are selling other assets of our infrastructure from three. Now, I am cautiously also optimistic that we'll manage to find the sale of these assets in the second half of 2023, contributing then for performance fees for the general partner, for PACS. I hope I answered your question and ready for the next one here.

Perfect. No, guys, thank you for the clarification. I have a second one regarding Bancolombia. It's an annual recover here, and I guess you put in the press release, and you mentioned sometimes about Central America operation. I guess this is the smaller portion of the pie, but just checking if the $1 billion AUM you benefit, you mentioned, this includes also Central America. You can also leverage it in those other countries that Bancolombia serves. And our second topic here, also regarding Bancolombia, is Sura, right? I know it's not the same company, but usually it's also an important distribution channel for asset management products in the region. So just checking if this is only Bancolombia or if you have any kind of agreement with Sura or not really. Thank you.

Thank you for the question. So both of the situations are upside, okay? So the deal that we have with Bancolombia is off today. It's Colombia and it's Bancolombia only. As you pointed out, Bancolombia, it's the dominant player in Central America, in Panama, Guatemala, and El Salvador. We have not touched those geographies so far. It's open to explore in terms of distribution, but the REIT business that comes along with Bancolombia is exclusively Bancolombia. Colombia dedicated vehicle but we have no limitations to expand the relationship into Central America and in fact is part of the discussion okay and at surah we are not contemplating in the existing business plan distribution through surah but there's also no limitations that we go into that direction

Perfect. Thank you. Super clear. Thank you, guys, and congrats on the quarter.

Thanks, Yuri.

One moment for our next question. And our next question comes from William Bairdiard with Atal BBA.

Good morning, Alex, Marco. A quick one here. So regarding that FRE target of $150 million, So this target implies that the company should show a good performance in the second half of the quarter, around 30% growth in FREs over the first half. So if you could go through it, we would like to understand what are the levers for that improvement.

Yes. Hi, William. Thanks for your question. Thanks for participating. Yeah, I think the way that these drawdown funds work, is that you do the first close of the fund, and then as you raise money after the first close, the fees are retroactive to the first close. So contrary to the liquid strategies, as we talked here with Ricardo, when someone invests, subscribes quotas for a liquid fund strategy, the day that it hits, as of that day, we start charging fees. In the case of the liquid funds, which is a major fundraising effort of this year, the flagship infrastructure fund five, private equity fund seven, blah, blah, blah. We did private equity first closing last year. We did our infrastructure fund five closing late in the second quarter, in late June. So for example, if I raise $100 million in September of 2023, I do not charge fees only from September to December. I charge fees from June, late June to December. So if I raise a billion, I have the whole six months of fees, not fees as of the date that we raised the money. So that's a major contributor factor. for that Because now give give an example here if I have a billion dollars William of fundraising for the drawdown funds by using a billion just as a illustrative example 2% of a billion is 20 million I don't if I raise that during the quarter I might have less than the 10 million for the semester, but no as I go all the way back to for Private Active Fund 7 to January of this year. So it's a full year. So if I raise a billion for Private Active Fund 7, I have 20 million dollars of fees. Even if I raise that money in November of 2023. If I raise for Infrastructure Fund 5, I have half a year because I have that first closing in June. So in my example, I have 10 million dollars of fees, which is 50% of 20. So it's pretty powerful when you do that, right? And, of course, in some funds you have differently, but this is a case of our fund. In addition, of course, we do see a momentum, as we talked over the call here today, for the liquid strategies, a momentum for fundraising for the liquid strategies because of all of the macro backdrop, more positive for LATAM, and we saw the redemptions coming down significantly, close to zero, that I also mentioned here. We saw fundraising for the liquid strategies going up, and that also We didn't see that in the first quarter of this year. Now we saw mostly in the second quarter of this year. So if we also project a cautiously optimistic on the second half, this good Latin American momentum will continue. So for the liquid strategies, we will raise more money in the second semester than in the first semester. So that's also a contributor. Mark, Oana?

Yeah, just to add that, I think, I'm not sure if it was clear Most of the growth is already contracted. It's a matter of fee base. The fee base is the fee-paying AUM that we have indicated allows you to build up these numbers. For example, private equity 7 is coming out of a fee holiday period. that's already contracted and that kicks in to the second half of the year so all all the commitments that has been made during the first half of the year will add up to the fee pain to the fee pain they went for the second half of the year so that composes the fee base for the second half of the year

I think what we can do here, William, is to, again, I think it's more effective here if we go offline and explain to you exactly on an after-class by after-class basis, but in general is for the illiquid drawdown funds is the fact that I mentioned of the, you close the fund, you have the first closing of the fund, and then when you raise money after that first closing, the fees are retroactive, number one. Number two, we are more optimistic in the second half of 23 versus the first half of 23 on fundraising for the liquid strategies because of the Latin American backdrop. And we began seeing that in the second quarter, more money coming in for our liquid strategies. That's the two macro factors. And then I think we can go with you offline and explain in more detail.

Okay, thank you. That's really clear, Alex and Marco.

No, thank you. I'm showing no further questions at this time.

I would now like to turn the conference back to Alex Saig for further comments.

Well, thank you very much for your patience, for hanging on for over an hour with us here. Of course, it's a huge pleasure that we have you guys with us here today. And we are honored that you guys are covering us. Thanks a lot for all of your efforts. Be sure that we continue to do our best here to deliver on our promises, on our Pax Day, on the fee-related earnings of $150 million, et cetera. And I hope to see you guys in person. And I think we have no meetings with most of you in the coming weeks and months. So that would be a pleasure, again, to see you in person. Thanks a lot. Thanks for your presence and talk to you soon.

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