Patria Investments Limited

Hello, and thank you for standing by. Welcome to PITREA's fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to your host, Josh Wood, Head of Shareholders Relations. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to PATRIA's fourth quarter 2023 earnings call. Speaking on the call are our Chief Executive Officer, Alex Saig, our Chief Financial Officer, Anna Russo, and our Chief Corporate Development Officer, Marco DiPolito. And we're 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 quarter, 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 made on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any PATRIA fund. As a foreign private issuer, PATRIA reports financial results using International Financial Reporting Standards, or IFRS, as opposed to U.S. GAAP. Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable IFRS measures are included in our earnings presentation. On headline metrics for the quarter, PATRIA generated distributable earnings of $70.5 million, or 47 cents per share, for 4T23. we declared a quarterly dividend of 39.9 cents per share, equating to 85% of distributable earnings per share, and payable on March 8th to shareholders of record as of February 22nd. With that, I'll now turn the call over to Alex.

Thank you, Josh, and good morning, everyone.

2023 marked PATRIA's third year as a public company, and I'm very pleased with the performance we delivered in the fourth quarter and the full year. We generated $47 million of fee-related earnings in Q4 23, bringing our full year 2023 FRE to $148 million, with an FRE margin of 60%. This is up 14% from 2022, driven mostly by organic growth. Performance-related earnings for Q4 2023 were $27 million, driven mostly by Infrastructure Fund 3, and we finished the full year 2023 with $47 million of PRE. With strong performance in both earnings streams, we delivered more than $70 million of distributable earnings or 47 cents per share for 4Q23, bringing distributable earnings for the full year 2023 to $188 million, or $1.26 per share. That translates to EPS growth of 26% year-over-year for our shareholders, and the resulting $1.07 in dividends equates to a yield of 7.7% based on our share price at the beginning of 2023. This was also our first year on the path to deliver the multi-year targets shared at our 2022 Investor Day, which look out through 2025. We aim to grow fee-related earnings from $130 million in 2022 to more than $200 million in 2025, equating to an annualized growth rate of approximately 15% or more. Given our performance in 2023, our organic growth initiatives and the additional earnings power embedded in our pending M&A transactions, I'm confident in our path to meet this target. While it's challenging to guide you on PRE in a given quarter or year, we said we could generate $180 million of performance fee realizations between our investor day and the end of 2025. Including the amount realized in the fourth quarter of 2022, we have now delivered more than $66 million of PRE since the investor day, putting us right on pace to deliver this target as well. In terms of growing the platform, We also set targets for total AUM to reach $50 billion and fee earning AUM to reach $35 billion by the end of 2025. And to achieve that, we estimated a need for at least $20 billion of capital formation from a combination of organic fundraising and M&A between 2022 and 2025. Starting from a base of $24 billion of total AUM and $18 billion of fee earning AUM in the beginning of 2022, over the last two years, we have had organic inflows of nearly $8 billion and added nearly $3 billion of additional inflows from acquisitions that have already closed to our fee-earning AUM base. As you know, we have also recently signed two significant M&A transactions, which we expect to close during 2024. And based on existing AUM levels, we expect these transactions to add more than $10 billion of additional fee-earning AUM to the platform. When you put that all together, combined with our goal to raise around $5 billion of gross organic inflows again this year, we believe that by the end of 2024, by the end of this year, we should have already achieved the $20 billion of capital formation and $35 billion of fee-earning AUM a year earlier than expected. We are not only growing, we are growing with quality by adding stable and sticky AUM. Our permanent capital AUM is expected to grow to near 20 percent of total fee-earning AUM with a closing of pending M&A, with over 70% of fee-earning AUM continuing to be denominated in hard currency. Seeing this progress and the meaningful evolution of our platform, we expect to host another Investor Day event late this year to share our vision for the next phase of growth. Now, looking at some highlights and updates across the platform for the quarter of the year. Organic inflows to total AUM were $1.4 billion in Q4 and $4.8 billion for the year, counting additional $175 million of commitments that were approved in December and closed in January. Our fundraising for the year really showcases the power of diversity and reinforces why it's such an important aspect of PATRA's growth. Our latest flagship infrastructure vintage raised more than $1 billion in 2023, with more than $400 million in the fourth quarter. Our credit, real estate, public equities, and advisory verticals each contributed $700 to $800 million of gross inflows with some notable highlights. We secured more than $200 million in 4Q23 for our infrastructure private credit fund. Our PAN-LATAM large cap and small cap public equity strategies raised combined gross inflows of more than $740 million. The VDI real estate platform had a fantastic year, with broad inflows across the product offering totaling more than $750 million. And while the industry has seen a major slowdown in private active fundraising, we are quite optimistic that our flagship private active funds extension through the end of 2024, will allow us to significantly add to the capital we have already raised to reach over $2 billion. For us to sustain strong inflows, we have to always continue to perform to our clients. And I'm very pleased with the strong returns our strategies are delivering. We saw particularly strong performance in the fourth quarter with more than $1.1 billion in positive valuation impact, driving full-year 2023 appreciation to more than $1.9 billion. Leading the charge here was strong performance in some of our larger publicly traded positions in the private equity platform, like Lavoro, our agriculture inputs distributor, Smartfit, our low-cost gym chain, and Ultrapar, our gas station network company. This drawdown fund appreciation has driven our net accrued performance fees to $541 million, up more than 15% from the prior quarter and 13% from one year ago, even after the realization of $47 million of PRE in 2023. The strategies in our public equities vertical also generated strong gains with pan-LATAM strategies yielding nearly 29% in U.S. dollars and Chilean equity strategies yielding more than 18% in local currency for the full year. The performance of our credit strategies was also notable with our LATAM high-yield fund, which is dollar-denominated, yielding 14% in 2023, while the local currency fund yielded nearly 30% in US dollars for the year. We have continued to stress that returning capital to our investors has also been a key focus in 2023, and our divestment activity in the drawdown funds continue to gain momentum. sales transactions for OData, our data center business, and Entrevias, one of our toll roads in Brazil, in our Infrastructure Fund 3, which delivered more than $1.5 billion of proceeds to investors and pushed this fund through the performance fee realization hurdle to generate much of our PRE in 2023. We also announced the sale of Delis, our food distribution platform, as well as block sales in publicly traded positions, which secured more than $600 million of additional proceeds. In total, we realized more than $2.5 billion across the platform for our limited partners during 2023. Finally, I want to take a moment to highlight some new initiatives that are moving forward here in early 2024. We have been very active on the M&A front in 2023, but I want to also give equal attention to some of the great things we are doing organically to grow our platform. First, we are nearing the formal launch of our first infrastructure private credit fund, which is something we have been diligently working towards over the course of 2023. We believe this is a major opportunity to grow our private credit offering while leveraging our extensive experience and deal flow access in the infrastructure space. This fund will have a very long-dated 50-year term structure, making it effectively permanent capital for our platform. As noted earlier, we formally secured more than $200 million in initial commitments for this fund in Q4, anchored by multilateral agencies, and now have commitments taking us up to $350 million. We see good momentum for this fund to become a meaningful contributor to fees in the next few years. Second, we are also announcing the start of a new platform within our infrastructure practice. PATRIA has a long and successful track record in the energy sector, being one of the largest investors in solar, wind, small hydro, natural gas and transmission assets. Overall, PATRE has historically committed $2.3 billion in the sector over the past 18 years, representing more than $5 billion of overall capex. In connection with the remarkable growth of the energy free market in Brazil, we are excited to announce the launch of our energy trading platform. which will build on PATRA's historical expertise in this area. As energy supply volume continues on migration from the regulated market, the Brazilian free market is expected to grow from just over 30 billion reais, approximately $6 billion in 2023, to around 70 billion reais, approximately $12 billion by 2028. Within this backdrop, we believe there's a compelling opportunity in a very fragmented, independent trading space. This initiative will be developed in first Q24 in partnership with a talented team with an outstanding track record alongside Patriot's team. It will be funded with an initial contribution of 100 million reais, approximately $20 million, from PATRIA's balance sheet with up to 50 million Reais, approximately $10 million of value at risk. We expect this new strategy to be a positive contributor to PATRIA's earnings with limited impact in the first few years, but with attractive margins and exciting growth potential over time. After establishing a track record of success We believe it would also progress into an asset management strategy with third-party capital and a relevant contributor in our infrastructure vertical. We expect to provide more details in coming quarters as this initiative takes shape. To finish here, I'm very pleased with PATRA's performance in 2023 and our growth path. And I'm very proud of what we have accomplished in the three short years since our IPO. Our platform has significantly expanded beyond two successful flagship strategies, private equity and infrastructure, to provide a diversified client offering across major asset classes, adding scale and expertise in credit, real estate, and public equities. This expansion turned a limited offering of less than 10 products into a versatile menu of more than 30 products to serve a range of client profiles and needs. We extended our geographic presence in the region in both investment expertise and distribution capability through new partnerships in Chile and Colombia. Through this expansion and diversification, our fee earning AOM has grown from approximately $8 billion at our IPO to a pro forma of more than $34 billion today, including pending M&A. In turn, we have grown our fee-related earnings from less than $60 million in 2020 to nearly $150 million in 2023, with more growth embedded as we progress towards our 2025 target of over $200 million. And importantly, through this growth, I believe we have maintained the high standards of investment performance that is valued and demanded by our clients And this always remains the key to our growth over the long term. Let me now turn to Marco for an update on corporate development, and then Ana to walk through the numbers. And I'll be back for some final thoughts. Marco, over to you.

Thank you, Alex, and good morning, everyone. It was indeed a very active year for Patria on M&A front. And since the IPO, we have now signed or closed on six acquisition transactions as part of our strategy to expand the platform and grow our earnings capacity. Industry consolidation seems to be the newest hot topic in the sector, but this is certainly nothing new to Patria. We've made inorganic growth a key part of our strategy over the last three years. Through Moneda, we acquired scaled credit and public equities platforms along with the key leadership talent as well as geographic expertise and distribution relationships in Chile. We also added depth and versatility on the private equity vertical through the acquisition of teams focused on growth equity with Camaropin and venture capital with the case of IGAR. In real estate, we acquired 50% of VBI real estate. We had an option to acquire the remaining stake to anchor our presence in Brazil. And recently, in the fourth quarter, 2023, we were able to act on a very attractive opportunity to acquire Crédit Suisse real estate. Also recently, in the fourth quarter, we signed the agreement to acquire the private equity solutions business from Aberdeen. Once closed, this transaction will launch a new vertical for Patria called Global Private Market Solutions, which adds fast-growing secondaries and co-investment strategies, and will enhance our ability to offer diversified global alternatives exposure to our clients. In addition to the acquisitions, in the Colombian market, we have joined forces with Colombia in a venture that will anchor our real estate presence in the country and also tap into a massive distribution network to provide a range of locally focused alternatives products to Colombian investors. As substantial as our M&A activity has been, it's worth noting that transactions closed in 2023 contributed effectively only $2 million in FRE in the year, Likewise, the major M&A transactions signed in 2023 will also have only partial year impact in 2024, depending on closing timing. We continue to feel good about the process with the private equity solutions business we are acquiring from Aberdeen, on track to close in the first half of the year. We also feel comfortable with the process on Credit Suisse real estate, which is slightly more complex as we will go through a fund-level shareholder approval process in each REIT vehicle following standard regulatory approvals. All in all, we expect to begin 2025 with these acquisitions fully on board and fully contributing to reaching our earnings targets. With two sizable pending transactions, 2024 will be an important year of consolidation and integration as we close the deals. However, we do remain active and will continue to have an opportunistic mindset to achieve our platform growth ambitions through M&A. I will now turn the floor to Ana to go through the results in more details.

Thank you, Marco. BATRA delivered a strong quarter and a solid year. with significant growth of our main KPIs, and we remain a consistent path to reach our 2025 targets. Our fourth quarter 23 distributor earnings of $70.5 million were up 32% from Q4 2022. And adding to our year-to-date results, we reach a full year 2022 DE of $187.8 million, up 28% compared to prior year. Our resilient management fee revenues were $64.7 million in Q4 23, rising 18% compared to Q4 22, and $245.6 million for the full year 2023, up 11% compared to 22. This growth was supported by our latest flagship private equity and infrastructure fund, as well as the expansion of our real estate platform. Total operating expenses, including personal and administrative expenses, total $18.9 million in Q4-23, down $5 million compared to Q4-22. This decrease is driven mainly by the further implementation and expansion of our equity compensation plan at the executive bonus level, already mentioned at core. Integration, synergies, and outsourcing mailing IT partly offset by M&A expenses, salary increases, inflation, and appreciation of the curves. For year 2023, total operating expenses were $91 million, almost flat versus prior year, involving the same general drivers of the quarterly comparison. Looking specifically at the personnel expenses, the quarterly average during 2023 was approximately $15 million, with the last two quarters of the year impacted by the catch-up accrual impact of implementing our equity compensation program. Therefore, the 2023 quarterly average, as opposed to the Q4 23 results, is a more reasonable run rate to consider as we enter 2024. Fee-related earnings were 46.7 million in the quarter, up from 35.3 million in Q4 22. For year 2023, FRE reached $147.7 million with a margin of 60%, up 14% year-over-year with a 2.4 percentage point increasing margin. The M&A transactions closed in 2023 contributed effectively about $2 million of FRE in the year, which was mainly Camarguin, IGA, and two months of Bancolombia, with the remainder of the growth being organic. We finalized a stronger year with 1% to 2% of our FRA guidance, and this result continues to keep us on track to deliver at least 170 million FRA in 2024, as well as our 2025 FRA target of at least $200 million. We have also been consistently generating performances throughout the last several quarters. During Q4-23, we generated $26.6 million of performance-related earnings, driven by a combination of additional net proceeds for Infrastructure Fund 3 and contributions from one of VBI's drawdown funds. Since our event today, we have crystallized $66 million out of our $180 million target throughout 2025. Net accrued performance fees were up 15% from the prior quarter to reach $541 million, even after considering the performance fee realization in the fourth quarter, with the additional accrual coming mostly from private equity funds' appreciation and positive current impact. This current accrual now represents more than $3.6 per share of performance fee inventory. On taxes, our corporate income tax expense in 2023 rose $3.1 million compared to 2022, with the slightly higher expected tax rate driven by a higher mix of performances subject to local tax rates. So again, highlighting the bottom line, this all led us to a distributed earnings of $187.8 million in 2023, which is an increase of almost 30% versus the prior year. Now, a few notable comments on our DE to net income reconciliation. As we close our transaction with Banco Longa and sign another two acquisitions agreements in the fourth quarter, we include more M&A-related costs, which you can also see in the transaction cost line. In regard to the equity-based and long-term compensation line, FASA implemented a voluntary compensation bonus code mentioned before on the FRA explanation, which gives us the opportunity to executives to convert 50% of their cash bonus into equity shares, receiving a matching component to be assessed in three to five years. This was very well received by our senior level people, showing the high long-term commitment and engagement of the team. The majority of the impact of this P&L line comes from this new program, and the remaining relates to previous long-term programs from PATRA and Acquired Compens, as well as equity-based compensation of partners. And finally, an important clarification on PATRA's dividend payout. In the announcement of our agreement to acquire the Brazilian New Estate Vendor Fund Credit Suisse back in November, We noted that PATRA will give careful consideration to our optimal cash flow structure as we look into 2024 and beyond, as we use a combination of cash, debt, equity to fund our M&A program. Beginning in Q1 2024, we may elect to retain more than 15% of our performance-related earnings and realize gains from the new energy trading platform, net of a proportional share of corporate taxes. rather than distribute a full 85% as we aim to do with the rest of our distributive earnings stream. We expect to exercise this incremental retention up to an additional $100 million in order to fund M&A obligations and pay down debt, after which point we will evaluate the appropriate distribution approach for this earnings going forward. To be very clear, We plan to continue to distribute 85% of our stable and recurrent fee-related earnings stream, maintaining our commitment to deliver an attractive payout for our shareholders. I will now turn back to Alex for closing remarks.

Thank you, Juana. As we turn to your questions, I'll just reiterate how pleased I am with our performance in 2023 and over the last three years. and with the tireless contributions from the entire PATRA team to make it happen. From approximately $8 billion of fee earning AUM at the IPO to more than $34 billion including our pending M&A. I think that this is a remarkable achievement. This is a people business. and we truly have a fantastic group of talented people pushing this company forward. As Erna noted, 2024 will be a transition year to our multi-year growth targets for 2025. We are comfortable in getting the fee-related earnings to at least $170 million in 2024, on the way to more than $200 million in 2025. Considering the growth embedded in our pending transactions, our organic initiatives, I am confident that we will reach both the financial and the AUM targets for 2025. We thank you for your time to listen today and now happy to take your questions.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone. and then wait to hear your name announced. To withdraw your question, please press Start11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Craig Seigenthaler with Bank of America. Your line is open.

Hi, good morning. Thank you for taking the question. This is Rodrigo Ferreira on the line for Craig. For Private Equity Fund 7 and Infrastructure 5, can you walk us through the size and timing of those raises? You've already closed on about $1.2 billion for PE7 and about $1 billion for Infra 5. Do you expect consistent fundraising throughout 2024 or a few large closes?

And when should we expect a final close for each of them?

Hi, Rodrigo. This is Alex here. Thanks for your call. Thanks for participating. Can you hear me well, right? Yes. Okay, great. Well, private equity fund seven, we are on the way to raise $2 to $2.5 billion. We are at today halfway there, halfway to the $2.5 billion. We are at a big... I think the latest number is $1,280,000 or something like that. We didn't have any closings beginning of this year. We have another process open in Brazil. As you know, when we fundraise in Brazil, it's a very locked-in fundraising process, so we should be fundraising in the next 30, 45 days. Something to do for investors. We expect another $1,500,000,000 coming from there, and then follow on raising this fund to 2 to 2.5 billion, which is the guidance that we gave late last year.

We continue the same. We're also fundraising to Latin America.

We know we should push close to 5 billion in addition to fundraising.

And then from there, from 1.5 to 2 billion, we have from the second quarter to the last quarter of the year, three quarters ago, which we feel confident. As also mentioned, extended the fundraising period for this fund to the end of this year. The fundraising period was going to end in the second quarter. We extended until the end of 24, as fundraising is taking more time than usual for most funds, private equity fund seven being one of them, as already mentioned in previous calls. So we extended the LPs that are already in the fund agreed with this fundraising extension period. On infrastructure fund four, fund five, I'm sorry. We are over a billion as of Marcelo Mollinari- beginning of January, we have some commitments that were approved in the investment committees of some lps late last year, and they some of them were signed late last year. Marcelo Mollinari- One significant commit a commitment was signed beginning of this year so pushes us to over a billion and more or less the same process that I that I described for infrastructure. Marcelo Mollinari- For private equity from seven infrastructure from five have significant fundraisers to be done in Brazil. Chile and Colombia this year, more in the first half of the year, and then we continue fundraising with ex-LATAM investors. We still feel very positive that we can reach the $2 to $2.5 billion number, closer to the $2.5 billion. So those two together will be around $4.5 billion, $2 to $2.5 billion from private equity fund seven, $2 to $2.5 billion to Roozbeh Gharakhloo, Infrastructure from five and again and I see a good demand for infrastructure, so the higher probability of reaching the 2.5 their number that I mentioned. Roozbeh Gharakhloo, So infrastructure from five as we started raising last year. Roozbeh Gharakhloo, We didn't ask for an extension extension normally of this fund is a normal fundraising period which ends in the end of this year, if they are. One or two investors are still working on our data room at the end of this year. I think we can ask for an extension there. I don't think it's going to be necessary, but it is possible. It's common for these kinds of fundraisings. Hopefully, I answered your question, Rodrigo. That was it, right? Fundraising for Infra 5 and fundraising for Private Active 7, right?

Yeah, thank you so much for the color. That was super helpful. For my follow-up, you had guided before that you expected $2 to $2.5 billion of realizations in, I think, 2024 and the beginning of 2025. Do you expect this to be concentrated towards a certain part of the calendar year? And can you remind us which funds should be accounting for most of these realizations?

Yeah, unfortunately, it's very hard for me to give you an exact quarter for realizations. I joke with my team that M&A should not be mergers and acquisitions. Sometimes it should be called misery and anguish. You're selling a company a quarter here, a quarter there, on the buy side and the sell side. On the sell side specifically, which are realizations that you asked for my guidance, we have a very strong and we will continue with a very strong divestment agenda As you can see, since the IPO in early 2021, we have been delivering. First was private equity fund three that gave us a very important for 2021 performance fees that padded to our distributed learnings, and then came private equity fund five, beginning of 2022, and then came infrastructure fund three, and you know the whole story. So today, as of today, Infrastructure Fund 3 still have some important assets to be sold. And we are in the process of selling them. And we're beginning to sell assets of Infrastructure Fund 4. There are some great assets there. You know the strategy. I don't want to be repetitive here or redundant with you. It is a win-the-concession strategy, right? We win the concession. We build the assets. We call it de-risking. and then we sell the assets once it's operational. Several assets of our infrastructure fund four went operational last year. We had a solar panel farm that is now fully operational. So for us, ready to be sold. A thermal power plant already also operational as of end of last year. So all of these assets that once they are operational, we put them for sale. Also, when we manage toll roads, the first two to four years of the concession, we have big capex investments, and then we have more of a maintenance capex year five onwards for the next 25 years and generalizing. So there are some toll roads that we are in the five years into the concession that we want, so they're also ready to be sold as we did with one of the toll roads of our infrastructure fund three last year. Private equity fund five and four, five and six, we are selling assets of these three funds. So we did sign the sale of an asset of private equity fund four beginning of this year. So we haven't closed yet. So we didn't announce it, but we signed the sale of one of the assets of private equity fund four. And we are on a very active agenda in selling assets of these three funds. So adding all of this, which a lot of divestments is not the issue, there's over 15 companies being divested, Rodrigo, as we speak, because we're adding, again, assets from infrastructure fund three and four, assets from private equity fund four, five, and six. So adding all these assets, there are over 15 assets being sold from these funds. So again, I think it's very hard for us to give a specific quarter, sometimes even year, for our performance year realizations. However, the $180 million that we guided in our PAC state end of 22, we feel comfortable that we'll deliver. We already delivered on 66, so we have to deliver another 110, 114, which we are confident that we can between this year and next year. Thank you.

Great. Thank you very much, Alex.

Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Ricardo Buchbegel with DTG Pactual. Your line is open.

Good morning, guys. I have two questions here on my side. First, I wanted to get an update from your perspective in terms of netting flows in your liquid strategies. I wanted to particularly get a sense in the interest from Chilean investors, particularly in equities and credit, already during the beginning of the year. If you guys have seen more than that, given these in cycles and should progressively improve throughout the following quarters. And for my second question, it's more for the previous one. I want you to get a sense in terms of how close is the PFAN 5 and PFAN 4 from the hurdle rate as after it hits the hurdle rate, it starts paying performance. Thank you.

Thank you very much again for your question. This is Alex again, and please, team, compliment here my answer. On the public equity and public debt funds that you asked, we had 2022 net outflows, I think we mentioned in previous quarters. about 2022. As we went into 2023, and the perspective of better macro conditions in the US, in Latin America, specifically in Chile, we started seeing our redemptions dry out. And then in the second, third, and fourth quarter of 2023, we saw plus net inflows. And as I think I mentioned in Yuri's call, each one of these families of strategies, public credit and public equity, each one of them with over $750 million of inflows. So we were extremely pleased. Of course, not only the macro situation improved, but the performance of the funds were extremely positive, beating benchmarks in most of them during 2023. I gave some of the numbers during the call, but an extremely pleased and really groundbreaking performance. Our high-yield Latin fund with 14%, 15% net returns our small cap and large cap lifetime strategy for public equities between 20 and 30 percent returns and small cap chile the same but extremely positive returns of course the macro situation that benefit the inflows plus the performance of the fund both of them working together for this kind of inflows that i mentioned over 750 million dollars for each of these strategies, the whole vertical of public equities. And in addition, the whole vertical of public debt, public credit. We go into 2024 with the same view as 23. We continue seeing very small redemptions. As you know, these redemptions are programmed so we can actually see them ahead of time. as investors have to place their redemptions ahead of the redemption date. So we have a looking forward kind of view. And they are very small. Some of the funds close to none. And we have inflows coming in. And we see inflows coming in also from international investors, not only Chilean institutional investors. and Colombian and Peruvian institutional investors that were the bulk of the investors of these two strategies, we see international X.com investors coming in also to the strategy. Some of them, as mentioned, they did redeem in 2022. We had some specific issues with our UK investors. As you know, the UK went through a big guilt crisis in 21-22. and some of our institutional investors then had to redeem money from all of their liquid funds, including ours. In 2023, things returned to normal, and they started then investing again in funds like ours, including ours. So we see net inflows from the international investors, X.com, in 2023, and we see already good perspectives in 2024. So we have very good numbers for the first quarter, to be honest.

uh so did i answer your questions should i did i miss anything here i'm sorry no the the this first part of the question was very clear uh i'm not sure if you if you can discuss that but if you could get a sense in terms of the uh how close we are in terms of the hurdle for beef and five and four no fantastic no i was

Yeah, I was going to answer the second part. I just wanted to make sure that the first part was a good answer for you. No, great. Well, the second part of your question, we are already in the catch-up phase of Infrastructure Fund 3, and we are far from the catch-up phase for Infrastructure Fund 4. We haven't started selling the assets yet. As you know, we have European carry, so we have to give all the principal back plus the hurdle before we actually go into performance-y modes, and we're far because we haven't started divesting assets from the infrastructure Fund 4. I mentioned that we are on the process of selling, but we have not signed and closed any of those deals. For private equity, we sold a significant asset from private equity Fund 5, a food distribution company that pushes our DPI distributable paid in capital for private equity fund five, we have no, if we sell one of one or two assets of that fund, we will reach the performance level, be it a healthcare company that is that loss of some five, be it the agricultural inputs company that we listed in NASDAQ, and or our no participation in a gym club market, as you know, if we sell one of those three assets, because of the significant size of these assets inside our fund five, it pushes us very close to our giving back the principle, getting into the performance level. We are now considering selling these assets, two of them already listed, so it's more considering follow-ons. I think we still have a hard IPO market ahead of us, at least for the next couple of quarters, maybe in the second half of this year, things get better for IPOs, but we have a significant interesting market already going on for follow-ons. We did several follow-ons for two of our portfolio companies in 23, one from Infrastructure Fund 3 actually, Ibravia's, Waterway's company, And we also did a follow-on for our healthcare company, the gym chain, SmartFit in 23. So we will continue doing that in 24. And we see an interesting market for additional follow-ons. So I hope I answered the question. Infrastructure Fund 3 is already there. Infrastructure Fund 4 is far from there. And Private Equity Fund 5, depending on the mosaic of divestments here, we can reach that, uh, uh, performance fee, uh, mode, uh, this year or next year, most probably next year, but we don't actually depend much, uh, for the performance, the realization target that we have for this year on, on private income.

Hi, this is Marco. Can I, can I compliment something Ricardo may be helpful for, uh, for your question and the way you're building up the model. We have about 540 million of net unrealized performance fee. And out of this amount, 234 from private equity fund five, 169 for private equity fund four, and 110 from infrastructure fund three. If you tie this number to the previous information that Alex gave, of 66 million that have been already returned and contrast that with the three-year target of 180. So if you take from this 180, the 66, the 110 that is visible on infrastructure three alone would be enough for us to meet the target for the three years. So as much as, of course, we're paying a lot of attention to private equity five and private equity six and all the considerations that Alex posed, which we still have to return the money before we get into the catch-up, infrastructure three alone, which is already in a catch-up phase, will be sufficient to satisfy the three-year target that we set on our tax day in 2022.

Thank you, Marco. Great compliment there. Great. Thank you. Thank you both.

Thank you. Please stand by for our next question. Our next question comes from the line of Tito Labrador with Goldman Sachs. Your line is open.

Hi, good morning. Thank you for the call and taking my question. Questions on the management fee evolution in the quarter. We had very strong growth in the fee-earning AUM, although the management fees did not grow as fast. Just to understand if there was anything in particular, why they didn't grow as fast as the fee-earning AUM in the quarter, and also incentive fees were also a little bit lower. you know, kind of led you to being slightly below your FRE guidance for the year. Just to think going forward if any downside risks on the guidance that you've given for, you know, the 170 for next year, 200, and FRE for 2025. Thank you.

Oh, thank you, Tiso. And thanks for the question and participating here in our call. There are sometimes some quarter-to-quarter movements on expenses, and I also can turn to one of our CFO to explain better. So sometimes I think it's better to see the whole year. Now, we did some acquisitions. We had some synergies in place. Sometimes we do run the synergies in one quarter, and they appear in our numbers in one quarter versus the other. because in one quarter we had extra costs because we were running two teams, and then we don't have to have two teams. We synergize to one team, and that shows in the other quarter. So it might have quarter-to-quarter kind of variances, but I'm very confident on the level of expenses that we are running today looking forward, which is the second point of your question, that we will be able to deliver the $170 million of FREs and over $200 million for 2024, and over $200 million of FRA for 2025, in addition to the expense streams that you actually saw for 2023, there are additional synergies that are coming into 2024, even more so when we hopefully add the two pending M&As. Again, to give you an idea, in some cases, we think that we can run the businesses with a lot higher FRE. We mentioned a couple of earnings calls ago that our real estate investment trust business through VBI or through Credit Suisse they were running at 30, 40% FRE margins. We can definitely push that up to our kind of margins. The same for our Aberdeen Carve Out Global Private Market Solutions business, a 30% margin business. I think we can push that up as well. That will come over time. It doesn't happen again from one day to the next. That's why during 24, we call this more of a transition year because we don't know when these big deals are going to close. again, they were already signed. And so a quarter over the next things might move a little bit, but we walk into 25 where they know very, very strong numbers as I try to show this earnings call with the inflows, organic inflows of this year that are projected to be $5 billion. We get into 25 with $38 billion of the earning AUM. You do the math there with our average management fee, you see what kind of revenues you go in in 25. And depending on the margin that you apply there, you can see that over the $200 million, it's possible the chances of us hitting that number increased with everything that we have done. So I think we're in a good place as of today. Of course, we have to continue to work very hard and deliver, but I think we're in a good place. I think the chances of us hitting the numbers went up over the last quarters. Ana, do you want to compliment on anything about the expenses?

I think as I mentioned during the first part, I think it's a good base for us to consider for at least for the first quarters of the year is our average that we have done in the in the beginning of 2023 since the fourth quarter had some catch-up or one-timers. So we talk about our personal expense being around $15 million, and all of the expenses we are preparing and doing synergies. And I think the run rate that we have between Q3 and Q4 are a base for when we look into 2024. There is a consolidation and integration next year that we expect to continue in this path.

Yeah, and Tito, this is Josh. Just one other quick point on your point around fee-earning AUM growing a little bit faster than management fees. There's a timing impact to that in some cases. And just to give an example to take Alex's point just a bit further is that the partnership that we closed with Bank Columbia near the end of the quarter, you had a new real estate vehicle come in bringing about $1.3 billion of fee-earning AUM. but we did not get a full quarter's worth of revenue impact for that. You'll see that as we go into 2024. So some of that is a timing impact just based on how the fee-earning AUM flows in, which is obviously in full, versus the revenue not being fully loaded until the next quarter.

All right, that's helpful. Thank you for clarifying that. And just on the incentive fees, they were also lower than they were last year. Any color you can provide on that?

Well, there I think it has to do with some of the benchmarks. And of course, our funds performed very well, as I mentioned last year. The benchmarks also did well. Of course, we beat the benchmarks that we had. That's why we had incentives. But vis-a-vis the benchmark, I think 22 was a good year and a slightly better year as we came in from 21 also with the low benchmarks. And we did hit for some accounts. We had different SNAs and for some accounts the way that you count the benchmark, whatever, in 2022, we did a little better. It's not much difference there, but it is an SMA by SMA. And again, in some SMAs, even though the absolute numbers for the performance in 22, they were a little lower, for some of the SMAs, we were beating the benchmark more than we did this year. And that generates them more incentives. And Anna, please let me hear if I... I did not mention anything important.

I think that's completely clear in our, you know, this year. It was really concentrated on our credit vertical. Okay. So that's, I just want to highlight that. And there is this concentration this year. Opposites from last year, which happened in the two verticals, credit and public assets.

Okay. Great. Thank you, Alex, Anna, and Josh. Thank you, Chitra.

Thank you. Please stand by for our next question. Our next question comes from the line of William Barajar with ATIBBA. Your line is open.

Good morning, Alex, Marco, everyone. Thanks for the presentation and the space for questions. So the first one you commented briefly regarding the possibility to reach the $35 billion VAUM one year earlier, so end of 2024. My question here is regarding the overall management fee rates. Do you expect any changes here or should maintain at the 1.2% that we see currently? And my second question is related to expenses. So could you go through the dynamics of personal expenses and the new shared base compensation programs in this quarter? I guess I would like to understand how much of the 12 million in equity compensation would be translated into personal expenses if this program was not in place. And I mentioned during the call that 60% of cash bonus could be converted into shares. So I guess is this the only adjustment then, or is there any other dynamics here?

Okay. Well, on the... on the program itself, I just want to say a couple words and then turn over the floor to Ana here to explain in more detail. It is a compensation program that is in addition to other programs that we had. And what we wanted to do here is put up a program that is voluntary. It's not an obligation. any of our partners and managing directors, they can opt to this program or not. If they opt to the program, whatever, up to 50% of the bonus that this person commits to the program, we will match the same number of dollars in Patria's shares. In order for this person in order to be eligible to the program, this person has to vest these shares and it's best a year in year three, a year in year four, a year in year five. So it's in, first of all, it's in addition to everything that we have. Uh, secondly, it has a lot to do with the retention. I think we are people business and retaining people in this business is extremely important. We already had significant carry programs, right, which is normal of our business distributing part of the performance fees to employees. As you know, we call this our carry program. I also wanted to give the senior executives shares of the listed companies. We really haven't done that since the IPO. We introduced this program now. So a senior employee, a senior executive at Patria will have carry and now this program that I just mentioned. Of course, it's a retention because the person has to stay in order to be able to obtain the program. We have this program already going on even as a private company. Of course, we re-addressed the program as a public company, and we had annual valuations that we would buy and sell shares from partners and managing directors. More or less the same mechanics that I just described, but instead of having a public valuation, we had a private valuation. Someone would come in and actually do the valuation once a year for us, and that was a valuation that we traded shares between us and paid bonuses in shares to the company. senior executives. So similar mechanics, of course, different now that we are this company. And it works a lot in retention. Ana, do you want to give some more detail on the program itself, please?

Now, let me just give me first a whole overview about that. And I think, first of all, I think we are all in the company very, really happy for the launch of that and the acceptance that we have across the company. I think this program is consistent with our industry and peers and, as Alex mentioned, is retaining but also attracting talent to the company as we move. And this program was launched in 2023. We worked to support our engagement and long-term commitment for the team. And we are able to spend that as we grow, as we have new M&As. So this actually could be spendable and is a very strong program. As Alex mentioned, this is a voluntary that includes our partners, mainly partners and MDs. And this gives the opportunity for these people to direct part of their cash or 50% of the cash bonds as mentioned before into this program and to have a matching component at that. This is a program that it will be offered going forward because this is part of now of our normal program and as evolved actually when we launch in Q3 as mentioned in previous quarter, has actually had a really great acceptance across, and that's why you see that in Q4 there was a much complete catch-up of that in terms of the program and how we accounted for it. So when you mentioned about the $12.4 million, and I could say that when you look into that in terms of this matching program, that we complete account for this line in the fourth quarter, it accounts about 70% of that is related to this matching program that we are considering.

So I don't know if that helped you to understand the program.

Yeah, if I can also complement this, we designed this at the IPO, to be honest. And we already had embedded that we were going to give this out over three years after the IPO. So it's a program that was already written, it was already there in our perspectives that we were going to give out up to, the perspective says up to 5% that we can actually give out in employee compensation. We haven't even reached half of that number yet, whatever. It's a very, very small number that we have. But yes, it's something that we have already incorporated in our numbers since 21, 22, 23. And we knew that we were going to actually effectively do this in the end of 23. So it was already a planned thing and already talked to our partners for a while now, for the last two, three years that we have been designing and talking to them about this program. What was the second part of your question again? I'm sorry. That was the first part.

Yes, the second part was very clear. Thank you for the answers. And the first part was just regarding the management fee rates as you reach your target of $35 billion.

Yeah, I'm sorry about that. I should have answered. Well, as you can see in one of the pages of the presentation, it's 1.2, the number that you just mentioned. As we do close on the two M&As, I think it's that have slightly lower effective management fees than the 1.2. I think the number going forward is between 1.1 and 1.15. Anna, can you correct me if that number is correct, please?

Yeah, Alex, this is Josh. I think if you do the math, we gave some basic economics on the effective fee rates and the fee-earning AUM that we're bringing in on the two pending M&As. And I think if you do just a simple math based on our current blended rate and the blended rates implied by the economics that we gave, you'll get to a number that's between 1.0 and 1.1.

All right. That is great. Thank you for the answer.

Can I just add, when you do your assessment, of course, and building up into the model, the new acquisitions are bringing permanent capital And fee-paying AUM that is actually charged on NAV, so this is in terms of quality, visibility, and resilience, is a very high quality. Just consider that when you think about the model.

Of course, will do.

Thank you. Please stand by for our next question. We have a follow-up question from the line of Craig Seigenthaler with Bank of America. Your line is open.

Alexandre, Marco, hope you're both doing well. This is Craig, so thanks for taking our follow-up.

Hey, Craig, how are you?

I'm good. Good to hear from you guys. So my follow-up is on M&A. And, you know, you've been very active over the last couple of years with expansions in different geographies and products, Moneda, JV with Banco Columbia, VBI. But how do you think about existing capacity on the balance sheet and with your currency, the stock today to do more deals today? And I think you've been eyeing Mexico for a while. Maybe provide us a quick update on your thoughts on expanding into Mexico.

Marco, do you want to start that?

Do you want to run any corporate development there?

Yeah, I'll kick off your new compliment. So remember what we always say when we think about acquisitions, we're buying products, channel, and distribution. So every time I start my answer is, with that with this because it's really part of our strategy uh so proud of doing six acquisitions and adding credit real estate meaningfully now gpms i'll start with your second piece of your question mexico it continues to be a priority continues to be a target so the explanation is mostly on execution we were not able to find the right asset to to start but we continue to be very excited we think it's a It's not only a very important geography and very complementary to the platform, but also a great opportunity with everything that's going on down there. Regarding the first part of your question, how we're going to fund our expansion, what we've been doing with our acquisitions is funding in a mix between cash and equity. Retaining a couple of flexibilities. So there's flexibility relative to when this cash is coming out. Most of the acquisitions have been structured with seller's financing, so giving us time to generate the cash to pay for the acquisition. And in certain circumstances, we can opt between paying in cash or in equity at our favor, of course. So all that to give flexibility for us to be nimble when we design the strategy, we design the payment. In the last quarter, we announced one way to fund our acquisition, which is retaining part of the performance fees. I think we let that very clear, and I'll repeat here just for the sake of clarity. We're not touching on the FRE. We may selectively retain part of the performance fee in order to fund any cash necessities on the short term. So these tactical movements may occur in order to address the funding needs in the best way possible. And I'll defer to Ana to talk a little bit more about our cash flow. We do remain active in acquisitions. We mentioned in this call that this is going to be an important year of consolidation because we have two large pending M&As to be closed. The Aberdeen business by end of the first half and Credit Suisse business most likely by the end of this year, given the complexities and the particularities of the closing of this transaction. So not a lot of FRE coming through this year, but very solid FRE coming for next year. As a reminder, when we announced the Aberdeen transaction and the Credit Suisse transaction, we gave some guidances for you to work on how much this will bring into the platform. for the aberdeen business what we announced is a 7.8 billion fee pain awm deal where uh where uh the the average fee uh is uh between uh 50 and 60 bits so the average management fee which will equate to a margin between 30 and 40 percent and for the pretty swiss deal what we announced is a 2.4 billion at the time of the closing with a 50 with the 70 bit as a management fee and around 50% of FRA contribution. Hopefully I answered your question.

Now, if I can compliment Marco, I think, you know, going back to 2019 2020 And one of the main reasons of why the IPO early 2021, Greg, I think we saw this consolidation coming into place. I think we were kind of first movers with some few of our peers. And then we see some of our peers moving into this consolidation mode. You know the names of the major players in the industry buying, as Marco said, products. buying channel, buying geographic expertise. So I think we, a little humbleness here, but we were a little bit ahead of the peer group in that sense. Very important to consolidating the Latin American market and catering to our Latin clients and also catering to our international clients that want to come into LACAM. So we have a very interesting menu set today. of over 30 products that give us this ability to, to continue growing the platform very healthy and actually very comfortable today that we can actually deliver on the guidance that we gave late 22. So this is no it was no by strategy, not by chance, not that we're here today, thank God. And I think we've no well positioned here. And we want to continue to do more. I think we have a bigger balance sheet today and a bigger earning stream. And what I saw happening as well, and Marco leading this effort, I think a lot of general partners approaching us now more than three, four years ago were convinced that the consolidation is at play in our industry and willing to join forces with PATRIA because of everything that we can do for them on the fundraising side. on having a listed stock as a tool to attract talent and retain talent and to give the senior executives of this respective general partner liquidity in the future. So, you know, things that we saw a couple, you know, four or five years ago, they're actually happening. And we are getting phone calls now, contrary to three, four years ago that we had to call people and explain what we were trying to do. So it's pretty interesting to see that happening. I think we're not the only ones getting calls in the industry because the consolidation is at play, but we're definitely getting calls in our part of the world, which is pretty nice to go through this process. Thank you.

Thank you, Alexandre.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Alex for closing remarks.

Well, again, thank you very much for your patience here. And it's an end-of-the-year call, so it's a little longer than usual. So thanks really, really for your patience and dedication to come to the call, participate in the call with your questions. We're so happy to take your questions. It's an honor to take your questions. And again, we feel very good beginning 2024 now in a strong pace. with the guidance that we already mentioned over the call here a couple of times. So feel free to contact us with any further questions, and hopefully we'll see each other in person in your conferences. And actually, sooner than later, we're going to have in the next 60 days another earnings call, and hopefully coming up with good, strong news on 2024. Thanks again for your patience. Thanks for the collaboration, and see you guys in person soon. Thank you, team, as well, and thank you, operators.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. you Thank you. Thank you. Thank you. Hello, and thank you for standing by. Welcome to PITREA's fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to your host, Josh Wood, Head of Shareholders Relations. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to PATRIA's fourth quarter 2023 earnings call. Speaking on the call are our Chief Executive Officer, Alex Saig, our Chief Financial Officer, Anna Russo, and our Chief Corporate Development Officer, Marco DiPolito. And we're also joined by our Chief Economist, Luis Fernando Locas. for the Q&A session. This morning, we issued a press release and earnings presentation detailing our results for the quarter, 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 made on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any PATRIA fund. As a foreign private issuer, PATRIA reports financial results using International Financial Reporting Standards, or IFRS, as opposed to U.S. GAAP. Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable IFRS measures are included in our earnings presentation. On headline metrics for the quarter, PATRIA generated distributable earnings of $70.5 million, or 47 cents per share, for 4T23. we declared a quarterly dividend of 39.9 cents per share, equating to 85% of distributable earnings per share, and payable on March 8th to shareholders of record as of February 22nd. With that, I'll now turn the call over to Alex.

Thank you, Josh, and good morning, everyone.

2023 marked PATRIA's third year as a public company, and I'm very pleased with the performance we delivered in the fourth quarter and the full year. We generated $47 million of fee-related earnings in Q4 23, bringing our full year 2023 FRE to $148 million, with an FRE margin of 60%. This is up 14% from 2022, driven mostly by organic growth. Performance-related earnings for Q4 2023 were $27 million, driven mostly by Infrastructure Fund 3, and we finished the full year 2023 with $47 million of PRE. With strong performance in both earnings streams, we delivered more than $70 million of distributable earnings or 47 cents per share for 4Q23, bringing distributable earnings for the full year 2023 to $188 million, or $1.26 per share. That translates to EPS growth of 26% year over year for our shareholders, and the resulting $1.07 in dividends equates to a yield of 7.7% based on our share price at the beginning of 2023. This was also our first year on the path to deliver the multi-year targets shared at our 2022 investor day, which look out through 2025. We aim to grow fee-related earnings from $130 million in 2022 to more than $200 million in 2025, equating to an annualized growth rate of approximately 15% or more. Given our performance in 2023, our organic growth initiatives and the additional earnings power embedded in our pending M&A transactions, I'm confident in our path to meet this target. While it's challenging to guide you on PRE in a given quarter or year, we said we could generate $180 million of performance fee realizations between our investor day and the end of 2025. Including the amount realized in the fourth quarter of 2022, we have now delivered more than $66 million of PRE since the investor day, putting us right on pace to deliver this target as well. In terms of growing the platform, We also set targets for total AUM to reach $50 billion and fee earning AUM to reach $35 billion by the end of 2025. And to achieve that, we estimated a need for at least $20 billion of capital formation from a combination of organic fundraising and M&A between 2022 and 2025. Starting from a base of $24 billion of total AUM and $18 billion of fee earning AUM in the beginning of 2022, over the last two years, we have had organic inflows of nearly $8 billion and added nearly $3 billion of additional inflows from acquisitions that have already closed to our fee-earning AUM base. As you know, we have also recently signed two significant M&A transactions, which we expect to close during 2024. And based on existing AUM levels, we expect these transactions to add more than $10 billion of additional fee-earning AUM to the platform. When you put that all together, combined with our goal to raise around $5 billion of gross organic inflows again this year, we believe that by the end of 2024, by the end of this year, we should have already achieved the $20 billion of capital formation and $35 billion of fee-earning AUM a year earlier than expected. We are not only growing, we are growing with quality by adding stable and sticky AUM. Our permanent capital AUM is expected to grow to near 20% of total fee-earning AUM with a closing of pending M&A, with over 70% of fee earning AOM continuing to be denominated in hard currency. Seeing this progress and the meaningful evolution of our platform, we expect to host another Investor Day event late this year to share our vision for the next phase of growth. Now, looking at some highlights and updates across the platform for the quarter of the year. Organic inflows to total AUM were $1.4 billion in Q4 and $4.8 billion for the year, counting additional $175 million of commitments that were approved in December and closed in January. Our fundraising for the year really showcases the power of diversity and reinforces why it's such an important aspect of Patras growth. Our latest flagship infrastructure vintage raised more than $1 billion in 2023, with more than $400 million in the fourth quarter. Our credit, real estate, public equities, and advisory verticals each contributed $700 to $800 million of gross inflows with some notable highlights. We secured more than $200 million in 4Q23 for our infrastructure private credit fund. Our PAN-LATAM large cap and small cap public equity strategies raised combined gross inflows of more than $740 million. The VDI real estate platform had a fantastic year, with broad inflows across the product offering totaling more than $750 million. And while the industry has seen a major slowdown in private active fundraising, we are quite optimistic that our flagship private active funds extension through the end of 2024, will allow us to significantly add to the capital we have already raised to reach over $2 billion. For us to sustain strong inflows, we have to always continue to perform to our clients. And I'm very pleased with the strong returns our strategies are delivering. We saw particularly strong performance in the fourth quarter with more than $1.1 billion in positive valuation impact, driving full-year 2023 appreciation to more than $1.9 billion. Leading the charge here was strong performance in some of our larger publicly traded positions in the private equity platform, like Lavoro, our agriculture inputs distributor, Smartfit, our low-cost gym chain, and Ultrapar, our gas station network company. This drawdown fund appreciation has driven our net accrued performance fees to $541 million, up more than 15% from the prior quarter and 13% from one year ago, even after the realization of $47 million of PRE in 2023. The strategies in our public equities vertical also generated strong gains with pan-LATAM strategies yielding nearly 29% in U.S. dollars and Chilean equity strategies yielding more than 18% in local currency for the full year. The performance of our credit strategies was also notable with our LATAM high-yield fund, which is dollar-denominated, yielding 14% in 2023, while the local currency fund yielded nearly 30% in US dollars for the year. We have continued to stress that returning capital to our investors has also been a key focus in 2023, and our divestment activity in the drawdown funds continue to gain momentum. We closed sales transactions for OData, our data center business, and Entrevias, one of our toll roads in Brazil, in our Infrastructure Fund 3, which delivered more than $1.5 billion of proceeds to investors and pushed this fund through the performance fee realization hurdle to generate much of our PRE in 2023. We also announced the sale of Delis, our food distribution platform, as well as block sales in publicly traded positions, which secured more than $600 million of additional proceeds. In total, we realized more than $2.5 billion across the platform for our limited partners during 2023. Finally, I want to take a moment to highlight some new initiatives that are moving forward here in early 2024. We have been very active on the M&A front in 2023, but I want to also give equal attention to some of the great things we are doing organically to grow our platform. First, we are nearing the formal launch of our first infrastructure private credit fund, which is something we have been diligently working towards over the course of 2023. We believe this is a major opportunity to grow our private credit offering while leveraging our extensive experience and deal flow access in the infrastructure space. This fund will have a very long-dated 50-year term structure, making it effectively permanent capital for our platform. As noted earlier, we formally secured more than $200 million in initial commitments for this fund in Q4, anchored by multilateral agencies, and now have commitments taking us up to $350 million. We see good momentum for this fund to become a meaningful contributor to fees in the next few years. Second, we are also announcing the start of a new platform within our infrastructure practice. PATRIA has a long and successful track record in the energy sector, being one of the largest investors in solar, wind, small hydro, natural gas and transmission assets. Overall, PATRE has historically committed $2.3 billion in the sector over the past 18 years, representing more than $5 billion of overall capex. In connection with the remarkable growth of the energy free market in Brazil, we are excited to announce the launch of our energy trading platform. which will build on PATRA's historical expertise in this area. As energy supply volume continues on migration from the regulated market, the Brazilian free market is expected to grow from just over 30 billion reais, approximately $6 billion in 2023, to around 70 billion reais, approximately $12 billion by 2028. Within this backdrop, we believe there's a compelling opportunity in a very fragmented, independent trading space. This initiative will be developed in first Q24 in partnership with a talented team with an outstanding track record alongside Patriot's team. It will be funded with an initial contribution of 100 million reais, approximately $20 million, from Patria's balance sheet with up to 50 million Reais, approximately $10 million of value at risk. We expect this new strategy to be a positive contributor to Patria's earnings with limited impact in the first few years, but with attractive margins and exciting growth potential over time. After establishing a track record of success We believe it would also progress into an asset management strategy with third-party capital and a relevant contributor in our infrastructure vertical. We expect to provide more details in coming quarters as this initiative takes shape. To finish here, I'm very pleased with PATRA's performance in 2023 and our growth path. And I'm very proud of what we have accomplished in the three short years since our IPO. Our platform has significantly expanded beyond two successful flagship strategies, private equity and infrastructure, to provide a diversified client offering across major asset classes, adding scale and expertise in credit, real estate, and public equities. This expansion turned a limited offering of less than 10 products into a versatile menu of more than 30 products to serve a range of client profiles and needs. We extended our geographic presence in the region in both investment expertise and distribution capability through new partnerships in Chile and Colombia. Through this expansion and diversification, our fee earning AUM has grown from approximately $8 billion at our IPO to a pro forma of more than $34 billion today, including pending M&A. In turn, we have grown our fee-related earnings from less than $60 million in 2020 to nearly $150 million in 2023, with more growth embedded as we progress towards our 2025 target of over $200 million. And importantly, through this growth, I believe we have maintained the high standards of investment performance that is valued and demanded by our clients, And this always remains the key to our growth over the long term. Let me now turn to Marco for an update on corporate development, and then Ana to walk through the numbers. And I'll be back for some final thoughts. Marco, over to you.

Thank you, Alex, and good morning, everyone. It was indeed a very active year for Patria on M&A front. And since the IPO, we have now signed or closed on six acquisition transactions as part of our strategy to expand the platform and grow our earnings capacity. Industry consolidation seems to be the newest hot topic in the sector, but this is certainly nothing new to Patria. We've made inorganic growth a key part of our strategy over the last three years. Through Moneda, we acquired scaled credit and public equities platforms along with the key leadership talent as well as geographic expertise and distribution relationships in Chile. We also added depth and versatility on the private equity vertical through the acquisition of teams focused on growth equity with Camaropin and venture capital with the case of IGA. In real estate, we acquired 50% of VBI real estate. We had an option to acquire the remaining stake to anchor our presence in Brazil. And recently, in the fourth quarter, 2023, we were able to act on a very attractive opportunity to acquire Crédit Suisse real estate. Also recently, in the fourth quarter, we signed the agreement to acquire a private equity solutions business from Aberdeen. Once closed, this transaction will launch a new vertical for Patria called Global Private Market Solutions, which adds fast-growing secondaries and co-investment strategies, and will enhance our ability to offer diversified global alternatives exposure to our clients. In addition to the acquisitions, in the Colombian market, we have joined forces with Colombia in a venture that will anchor our real estate presence in the country and also tap into a massive distribution network to provide a range of locally focused alternatives products to Colombian investors. As substantial as our M&A activity has been, it's worth noting that transactions closed in 2023 contributed effectively only $2 million in FRE in the year, Likewise, the major M&A transactions signed in 2023 will also have only partial year impact in 2024, depending on closing timing. We continue to feel good about the process with the private equity solutions business we are acquiring from Aberdeen, on track to close in the first half of the year. We also feel comfortable with the process on Credit Suisse real estate, which is slightly more complex as we will go through a fund-level shareholder approval process in each REIT vehicle following standard regulatory approvals. All in all, we expect to begin 2025 with these acquisitions fully on board and fully contributing to reaching our earnings targets. With two sizable pending transactions, 2024 will be an important year of consolidation and integration as we close the deals. However, we do remain active and will continue to have an opportunistic mindset to achieve our platform growth ambitions through M&A. I will now turn the floor to Ana to go through the results in more details.

Thank you, Marco. VATRA delivered a strong quarter and a solid year. with significant growth of our main KPIs, and we remain a consistent path to reach our 2025 targets. Our fourth quarter 23 distributor earnings of $70.5 million were up 32% from Q4 2022. And adding to our year-to-date results, we reach a full year 2022 DE of $187.8 million, up 28% compared to prior year. Our resilient management fee revenues were $64.7 million in Q4 23, rising 18% compared to Q4 22, and $245.6 million for the full year 2023, up 11% compared to 22. This growth was supported by our latest flagship private equity and infrastructure fund, as well as the expansion of our real estate platform. Total operating expenses, including personal and administrative expenses, total $18.9 million in Q4-23, down $5 million compared to Q4-22. This decrease is driven mainly by deferred implementation and expansion of our equity compensation plan at the executive bonus level, already mentioned last quarter. Integration, synergies, and outsourcing mailing in IT partly offset by M&A expenses, salary increases, inflation, and appreciation of the curve. For year 2023, total operating expenses were $91 million, almost flat versus prior year, involving the same general drivers of the quarterly comparison. Looking specifically at the personnel expenses, the quarterly average during 2023 was approximately $15 million, with the last two quarters of the year impacted by the catch-up accrual impact of implementing our equity compensation program. Therefore, the 2023 quarterly average, as opposed to the Q4 23 results, is a more reasonable run rate to consider as we enter 2024. Fee-related earnings were 46.7 million in the quarter, up from 35.3 million in Q4 22. For year 2023, FRE reached $147.7 million, with a margin of 60%, up 14% year over year, with a 2.4 percentage point increasing margin. The M&A transactions closed in 2023, contributing effectively about $2 million of FRE in the year, which was mainly Camarguin, IGA, and two months of Bancolombia, with the reminder of the growth being organic. We finalized a stronger year with 1 to 2 percent of our FRA guidance, and this result continues to keep us on track to deliver at least 170 million FRA in 2024, as well as our 2025 FRA target of at least $200 million. We have also been consistently generating performances throughout the last several quarters. During Q4-23, we generated $26.6 million of performance-related earnings, driven by a combination of additional net proceeds for Infrastructure Fund 3 and contributions from one of VBI's drawdown funds. Since our inventor date, we have crystallized $66 million out of our $180 million target throughout 2025. Net accrued performance fees were up 15% from the prior quarter to reach $541 million, even after considering the performance fee realization in the fourth quarter, with the additional accrual coming mostly from private equity funds' appreciation and positive current impact. This current accrual now represents more than $3.6 per share of performance fee inventory. On taxes, our corporate income tax expense in 2023 rose $3.1 million compared to 2022, with the slightly higher expected tax rate driven by a higher mix of performance is subject to local tax rates. So again, highlighting the bottom line, this all led us to a distributed earnings of $187.8 million in 2023, which is an increase of almost 30% versus the prior year. Now, a few notable comments on our DE to net income reconciliation. As we close our transaction with Bancolombia and sign another two acquisitions agreements in the fourth quarter, we include more M&A-related costs, which you can also see in the transaction cost line. In regard to the equity-based and long-term compensation line, PASA implemented a voluntary compensation bonus code mentioned before on the FRA explanation, which gives us the opportunity to executives to convert 50% of their cash bonus into equity shares, receiving a matching component to this asset in three to five years. This was very well received by our senior level people, showing the high long-term commitment and engagement of the team. The majority of the impact of this P&L line comes from this new program, and the remaining relates to previous long-term programs from PATRA and Acquired Compass, as well as equity-based compensation of partners. And finally, an important clarification on PATRA's dividend payout. In the announcement of our agreement to acquire the Brazilian New Estate Vendor Fund Credit Suisse back in November, We noted that PATRA will give careful consideration to our optimal cash flow structure as we look into 2024 and beyond, as we use a combination of cash, debt, equity to fund our M&A program. Beginning in Q1 2024, we may elect to retain more than 15% of our performance-related earnings and realize gains from the new energy trading platform, net of a proportional share of corporate taxes. rather than distribute a full 85% as we aim to do with the rest of our distributed earnings stream. We expect to exercise this incremental retention up to an additional $100 million in order to fund M&A obligations and pay down debt, after which point we will evaluate the appropriate distribution approach for this earnings going forward. To be very clear, We plan to continue to distribute 85% of our stable and recurrent fee-related earnings stream, maintaining our commitment to deliver an attractive payout for our shareholders. I will now turn back to Alex for closing remarks.

Thank you, Juana. As we turn to your questions, I'll just reiterate how pleased I am with our performance in 2023 and over the last three years. and with the tireless contributions from the entire PATRA team to make it happen. From approximately $8 billion of fee earning AUM at the IPO to more than $34 billion including our pending M&A. I think that this is a remarkable achievement. This is a people business. and we truly have a fantastic group of talented people pushing this company forward. As Erna noted, 2024 will be a transition year to our multi-year growth targets for 2025. We are comfortable in getting the fee-related earnings to at least $170 million in 2024, on the way to more than $200 million in 2025. Considering the growth embedded in our pending transactions, our organic initiatives, I am confident that we will reach both the financial and the AUM targets for 2025. We thank you for your time to listen today and now happy to take your questions.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone. and then wait to hear your name announced. To withdraw your question, please press Start11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Craig Seigenthaler with Bank of America. Your line is open.

Hi, good morning. Thank you for taking the question. This is Rodrigo Ferreira on the line for Craig. For Private Equity Fund 7 and Infrastructure 5, can you walk us through the size and timing of those raises? You've already closed on about $1.2 billion for PE7 and about $1 billion for Infra 5. Do you expect consistent fundraising throughout 2024 or a few large closes?

And when should we expect a final close for each of them?

Hi, Rodrigo. This is Alex here. Thanks for your call. Thanks for participating. Can you hear me well, right? Yes. Okay, great. Well, PrivateX is fund seven. We are on the way to raise $2 to $2.5 billion. We are at today halfway there, halfway to the $2.5 billion. I think the latest number is $1,280,000 or something like that. We didn't have any closings beginning of this year. We have another process open in Brazil. As you know, when we fundraise in Brazil, it's a very locked-in fundraising process, so we should be fundraising in the next 30, 45 days, something to do for investors. We expect another $1,500,000,000 coming from there, and then follow on raising this fund to 2 to 2.5 billion, which is the guidance that we gave late last year.

We continue the same. We're also fundraising to Latin America.

We know we should push close to 5 billion in addition to fundraising.

And then from there, from 1.5 to 2 billion, we have from the second quarter to the last quarter of the year, three quarters ago, which we feel confident. As also mentioned, extended the fundraising period for this fund to the end of this year. The fundraising period was going to end in the second quarter. We extended until the end of 24 as fundraising is taking more time than usual for most funds, private equity fund seven being one of them, as already mentioned in previous calls. So we extended the LPs that are already in the fund agreed with this fundraising extension period. On infrastructure fund four, fund five, I'm sorry. We are over a billion as of Marcel Amirault- beginning of January, we have some commitments that were approved in the investment committees of some lps late last year, and they some of them were signed late last year. Marcel Amirault- One significant commit a commitment was signed beginning of this year so pushes us to over a billion. Marcel Amirault- And more or less the same processes that I that I described for infrastructure for private equity from seven infrastructure from five have significant fundraisers to be done in Brazil. Chile and Colombia this year, more in the first half of the year, and then we continue fundraising with ex-LATAM investors. We still feel very positive that we can reach the $2 to $2.5 billion number, closer to the $2.5 billion. So those two together will be around $4.5 billion, $2 to $2.5 billion from private equity, from $7 to $2.5 billion to infrastructure fund five. And again, I see a good demand for infrastructure. So the higher probability of reaching the 2.5 there, number that I mentioned. So infrastructure fund five, as we started raising last year, we didn't ask for an extension. The extension normally of this fund is a normal fundraising period, which ends in the end of this year. If they are, One or two investors are still working on our data room at the end of this year. I think we can ask for an extension there. I don't think it's going to be necessary, but it is possibly common for these kinds of fundraisings. Hopefully, I answered your question, Rodrigo. That was it, right? Fundraising for Info 5 and fundraising for Project E7, right?

Yeah, thank you so much for the color. That was super helpful. For my follow-up, you had guided before that you expected $2 to $2.5 billion of realizations in, I think, 2024 and the beginning of 2025. Do you expect this to be concentrated towards a certain part of the calendar year? And can you remind us which funds should be accounting for most of these realizations?

Yeah.

Unfortunately, it's very hard for me to give you an exact quarter for realizations. I joke with my team that M&A should not be mergers and acquisitions, sometimes should be called misery and anguish, right? You're selling a company a quarter here, a quarter there, on the buy side and the sell side, right? And on the sell side specifically, which are realizations that you asked for my guidance is we will continue, we have a very strong and we will continue with a very strong divestment agenda As you can see, since the IPO in early 2021, we have been delivering. First was Private Equity Fund 3 that gave us a very important for 2021 performance fees that added to our distributed learnings, and then came Private Equity Fund 5, beginning of 2022, and then came Infrastructure Fund 3, and you know the whole story. So today, as of today, Infrastructure Fund 3 still have some important assets to be sold. And we are in the process of selling them. And we're beginning to sell assets of Infrastructure Fund 4. There are some great assets there. You know the strategy. I don't want to be repetitive here or redundant with you. It is a win the concession strategy, right? Win the concession. We build the assets. We call it de-risking. and then we sell the assets once it's operational. Several assets of our infrastructure fund four went operational last year. We had a solar panel farm that is now fully operational. So for us, ready to be sold. A thermal power plant already also operational as of end of last year. So all of these assets, once they are operational, we put them for sale. Also, when we manage toll roads, The first two to four years of the concession, we have big capex investments, and then we have more of a maintenance capex year five onwards for the next 25 years and generalizing. So there are some toll roads that we are in the five years into the concession that we want, so they're also ready to be sold as we did with one of the toll roads of our infrastructure fund three last year. Private equity fund five and four, five and six, we are selling assets of these three funds. So we did sign the sale of an asset of private equity fund four beginning of this year. So we haven't closed yet, so we didn't announce it, but we signed the sale of one of the assets of private equity fund four. And we are on a very active agenda in selling assets of these three funds. So adding all of this, which are a lot of divestments, if not a few, there's over 15 companies being divested, Rodrigo, as we speak, because we're adding, again, assets from infrastructure fund three and four, assets from private equity fund four, five, and six. So adding all these assets, there are over 15 assets being sold from these funds. So again, I think it's very hard for us to, give a specific quarter, sometimes even year, for our performance year realizations. However, the $180 million that we guided in our PAC state end of 22, we feel comfortable that we'll deliver. We already delivered on 66, so we have to deliver another 110, 114, which we are confident that we can between this year and next year. Thank you.

Great. Thank you very much, Alex.

Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Ricardo Buchbegel with BTG Paxil. Your line is open.

Good morning, guys. I have two questions here on my side. First, I wanted to get an update from your perspective in terms of netting flows in your liquid strategies. I wanted to particularly get a sense in the interest from Chilean investors, particularly in equity and credit, already during the beginning of the year. If you guys have seen more demand given days in cycle and should progressively improve throughout the following quarters. And for my second question, it's more for the previous one. I want you to get a sense in terms of how close is the PFAN 5 and PFAN 4 from the hurdle rate as after it hits the hurdle rate, it starts paying performance. Thank you.

Thank you very much again for your question. This is Alex again, and please, team, compliment here my answer. On the public equity and public debt funds that you asked, we had 2022 net outflows, I think we mentioned in previous quarters. Uh, about 2022, as we went into 2023 and the perspective of no better, uh, macro conditions in the U S in, in Latin America, specifically in Chile, we started seeing our redemptions dry out. And then in the second, third, and fourth quarter of 2023, we saw plus net inflows. And as I think I mentioned in the earlier call, each one of these families of strategies, public credit and public equity, each one of them with over $750 million of inflows. So we were extremely pleased. Of course, not only the macro situation improved, but the performance of the funds were extremely positive, beating benchmarks in most of them during 2023. I gave some of the numbers during the call, but an extreme piece and really groundbreaking performance. Our high-yield Latin fund with now 14, 15% net returns. Our small cap and large cap lifetime strategy for public equities between 20 and 30% returns and small cap Chile, the same, but extremely positive returns. Of course, the macro situation that benefit the inflows plus the performance of the fund, both of them working together for this kind of inflows that I mentioned over $750 million for each of these strategies, the whole vertical of public equities, and in addition, the whole vertical of public debt, public credit. We go into 2024 with the same view as 23. We continue seeing very small redemptions. As you know, these redemptions are programmed so we can actually see them ahead of time. as investors have to place their redemptions ahead of the redemption date. So we have a looking forward kind of view. And they are very small. Some of the funds close to none. And we have inflows coming in. And we see inflows coming in also from international investors, not only Chilean institutional investors, and Colombian and Peruvian institutional investors that were the bulk of the investors of these two strategies, we see internationals, ex-latin investors coming in also to the strategy. Some of them, as mentioned, they did redeem in 2022. We had some specific issues with our UK investors. As you know, the UK went through a big guilt crisis in 21-22. and some of our institutional investors then had to redeem money from all of their liquid funds, including ours. In 2023, things returned to normal, and they started then investing again in funds like ours, including ours. So we see net inflows from the international investors, X.com, in 2023, and we see already good perspectives in 2024. So we have very good numbers for the first quarter, to be honest. So, did I answer your questions? Did I miss anything here? I'm sorry.

No, this first part of the question was very clear. I'm not sure if you can discuss that, but if you could get a sense in terms of how close we are in terms of the hurdle for PFAN 5 and 4.

No, fantastic. No, I was... Yeah, I was going to answer the second part. I just wanted to make sure that the first part was a good answer for you. No, great. Well, the second part of your question, yeah, we are already in the catch-up phase for our infrastructure fund three, and we are far from the catch-up phase for infrastructure fund four. Now, we haven't started selling the assets yet. As you know, we have European carry, so we have to give all the principal back, plus the hurdle before we actually go into performance-y modes. And we're far, because we haven't started divesting assets from the infrastructure fund floor. I mentioned that we are on the process of selling, but we have not signed and closed any of those deals. For private equity, we sold a significant asset from private equity fund five, a food distribution company that pushes our DPI Roozbeh Gharakhloo, Distributable paid in capital for private equity fund five we have no if we sell one of one or two assets of that fund. Roozbeh Gharakhloo, will reach the performance level, be it. Roozbeh Gharakhloo, A health care company that is the loss of some five years the agricultural inputs company that we listen to NASDAQ and or our no participation in a. Gym Club Smartfit, as you know, if we sell one of those three assets because of the significant size of these assets inside our fund five, it pushes us very close to our giving back the principle, getting into the performance level. We are now considering selling these assets, two of them already listed. So it's more considering follow-ons. I think we still have a hard IPO market ahead of us. Uh, at least for the next couple of quarters, maybe in the second half of this year, things get better for IPOs, but we have a significant, interesting market already going on for follow-ups. We did several follow-ups for, uh, two of our portfolio companies in 23, one from infrastructure from three, actually, uh, either he is a waterways company. And we also did a follow-on for our healthcare company, the gym chain, SmartFit in 23. So we will continue doing that in 24. And we see an interesting market for additional follow-ons. So I hope I answered your question. Infrastructure Fund 3 is already there. Infrastructure Fund 4 is far from there. And Private Equity Fund 5, depending on the mosaic of divestments here, we can reach that performance fee mode this year or next year. Most probably next year, but we don't actually depend much for the performance fee realization target that we have for this year on private income time.

This is Marco. Can I complement something, Ricardo, that may be helpful for for your question and the way you're building up the model. We have about 540 million of net unrealized performance fee. And out of this amount, 234 from private equity fund five, 169 for private equity fund four, and 110 from infrastructure fund three. If you tie this number to the previous information that Alex gave, 66 million that have been already returned and contrast that with the three-year target of 180 so if you do if you if you take from this 180 the 66 the 110 that is visible on infrastructure 3 alone would be enough for us to meet the target for the three years. So as much as, of course, we're paying a lot of attention to private equity five and private equity six and all the considerations that Alex posed, which we still have to return the money before we get into the catch-up, infrastructure three alone, which is already in a catch-up phase, will be sufficient to satisfy the three-year target that we set on our tax day in 2022.

Thank you, Marco. Great, great compliment there. Great. Thank you. Thank you both.

Thank you. Please stand by for our next question. Our next question comes from the line of Tito Labrador with Goldman Sachs. Your line is open.

Hi, good morning. Thank you for the call and taking my question. Questions on the management fee evolution in the quarter. We had very strong growth in the fee earning AUM, although the management fees did not grow as fast. Just to understand if there was anything in particular, why they didn't grow as fast as the fee earning AUM in the quarter. And also incentive fees were also a little bit lower. So you know, kind of led you to being slightly below your F.R.E. guidance for the year. Just to think going forward if any downside risks on the guidance that you've given for, you know, the 170 for next year, 200, and F.R.E. for 2025. Thank you.

Oh, thank you, Tiso, and thanks for the question and participating here in our call. There are sometimes some quarter-to-quarter movements on expenses, and I also can turn to Anna, our CFO, to explain better. So sometimes I think it's better to see the whole year. As we know, we did some acquisitions. We had some synergies in place. Sometimes we do run the synergies in one quarter, and they appear in our numbers in one quarter versus the other. because in one quarter we had extra costs because we were running two teams, and then we don't have to have two teams. We synergize to one team, and that shows in the other quarter. So it might have quarter-to-quarter kind of variances, but I'm very confident on the level of expenses that we are running today looking forward, which is the second point of your question, that we will be able to deliver the $170 million of FRE and over $200 million for 2024 and over $200 million of FRA for 2025. In addition to the expense streams that you actually saw for 2023, there are additional synergies coming into 2024, even more so when we hopefully add the two pending M&As. Again, to give you an idea, in some cases, we think that we can run the businesses with a lot higher FRE. We mentioned a couple of earnings calls ago that our real estate investment trust business through VBI or through Credit Suisse, they were running at 30%, 40% FRE margins. We can definitely push that up to our kind of margins. The same for our Aberdeen Carve Out Global Private Market Solutions business, a 30% margin business. I think we can push that up as well. That will come over time. It doesn't happen again from one day to the next. That's why during 24, we call this more of a transition year because we don't know when these big deals are going to close. Again, they were already signed. And so a quarter over the next things might move a little bit, but we walk into 25 where they know very, very strong numbers as I try to show during this earnings call with the inflows, organic inflows of this year that I would project it to be $5 billion. We get into 25 with $38 billion of fee earning AUM. You do the math there with our average management fee. you see what kind of revenues you go in in 25. And depending on the margin that you apply there, you can see that over the $200 million, it's possible the chances of us hitting that number increased with everything that we have done. So I think we're in a good place as of today. Of course, we have to continue to work very hard and deliver, but I think we're in a good place. I think the chances of us hitting the numbers went up over the last quarters. Ana, do you want to compliment on anything about the expenses?

I think as I mentioned during the first part, I think it's a good base for us to consider for at least for the first quarters of the year is our average that we have done in the in the beginning of 2023 since the fourth quarter had some catch-up or one-timers. So we talk about our personal expense being around $15 million, and all of the expenses we are preparing and doing synergies. And I think the run rate that we have between Q3 and Q4 are a base for when we look into 2024. There is a consolidation and integration next year that we expect to continue in this path.

Yeah, and Tito, this is Josh. Just one other quick point on your point around fee-earning AUM growing a little bit faster than management fees. There's a timing impact to that in some cases. And just to give an example to take Alex's point just a bit further is that the partnership that we closed with Bank Columbia near the end of the quarter, you had a new real estate vehicle come in bringing about $1.3 billion of fee-earning AUM. but we did not get a full quarter's worth of revenue impact for that. You'll see that as we go into 2024. So some of that is a timing impact just based on how the fee-earning AUM flows in, which is obviously in full, versus the revenue not being fully loaded until the next quarter.

All right, that's helpful. Thank you for clarifying that. And just on the incentive fees, they were also lower than they were last year. Any color you can provide on that?

Well, there I think it has to do with some of the benchmarks. And of course, our funds performed very well, as I mentioned last year. The benchmarks also did well. Of course, we beat the benchmarks that we had. That's why we had incentives. But vis-a-vis the benchmark, I think 22 was a good year and slightly better years. We came in from 21 also with the low benchmarks. And we did hit for some accounts. We had different SMAs and for some accounts the way that you count the benchmark, whatever, in 2022, we did a little better. It's not much difference there, but it is an SMA by SMA. And again, in some SMAs, even though the absolute numbers for the performance in 22, they were a little lower, for some of the SMAs, we were beating the benchmark more than we did this year. And that generates then more incentives. And Anna, please present me here if I... I did not mention anything important.

I think that's completely clear in our, you know, this year. It was really concentrated on our credit vertical. So I just want to highlight that. And there is this concentration this year. Opposites from last year, which happened in the two verticals, credit and public assets.

Okay, great. Thank you, Alex, Anna, and Josh. Thank you, Chitra.

Thank you. Please stand by for our next question. Our next question comes from the line of William Berejar with ATIBBA. Your line is open.

Good morning, Alex, Marco, everyone. Thanks for the presentation and the space for questions. So the first one you commented briefly regarding the possibility to reach the 35 billion VAUM one year earlier, so end of 2024. My question here is regarding the overall management fee rates. Do you expect any changes here or should maintain at the 1.2% that we see currently? And my second question is related to expenses. So could you go through the dynamics of personal expenses and the new shared base compensation programs in this quarter? I guess I would like to understand how much of the $12 million in equity compensation would be translated into personal expenses if this program was not in place. Ana mentioned during the call that 60% of cash bonus could be converted into shares. So I guess is this the only adjustment then, or is there any other dynamics here?

Okay. Well, on the... on the program itself, I just want to say a couple words and then turn over the floor to Ana here to explain in more detail. It is a compensation program that is in addition to other programs that we have. And what we wanted to do here is put up a program that is voluntary. It's not an obligation. any of our partners and managing directors, they can opt to this program or not. If they opt to the program, whatever, up to 50% of the bonus that this person commits to the program, we will match the same number of dollars in Patria's shares. In order for this person in order to be eligible to the program, This person has to vest these shares and it's best a year in year three, a year in year four, a year in year five. So it's in, first of all, it's in addition to everything that we have. Second, it has a lot to do with the retention. I think we are people business and retaining people in this business is extremely important. We already had significant carry programs, right? Which is normal of our business distributing part of the performance fees to employees. As you know, we call this our CARE program. I also wanted to give the senior executives shares of the listed company. We really haven't done that since the IPO. We introduced this program now. So a senior employee, a senior executive at Patria will have CARE and now this program that I just mentioned, Of course, it's a retention because the person has to stay in order to be able to obtain the program. We have this program already going on, even as a private company. Of course, we readdress the program as a public company, and we had annual valuations that we would buy and sell shares from partners and managing directors. More or less the same. mechanics that I just described. But instead of having a public valuation, we had a private valuation, someone come in and actually do the valuation once a year for us. And that was a valuation that we traded shares between us and paid bonuses in shares to the senior executives. So similar mechanics, of course, different now that we are this company. And it works a lot in retention. Ana, do you want to give some more detail on the program itself, please?

Now, let me just give me a first, a whole overview about that. And I think, first of all, I think we are all in the company very, really happy for the launch of that and the acceptance that we have across the company. I think this program is consistent with our industry and peers, and as Alex mentioned, is retaining but also attracting talent to the company as we move forward. uh and this program was launched in 2023 uh is uh we work that to support our engagement and long-term commitment for the team and we are able to spend that as we grow as we have new mna so this is actually could be expandable and and it's a very you know strong program uh as alex mentioned this is a voluntary that includes our partners and mainly partners and MDs and this gives the opportunity for these people to direct part of their cash or 50% of the cash bonds as mentioned before into this program and to have a matching component at that. This is the program that it will be offered going forward because this is part of now of our normal program. And as evolved, actually, when we launched in Q3, as mentioned in previous quarter, has actually had a really great acceptance across. And that's why you see that in Q4, there was a much complete catch up of that in terms of the program and how we accounted for it. So when you mentioned about the $12.4 million, and I could say that when you look into that in terms of this matching program, that we complete account for this line in the fourth quarter, it accounts about 70% of that is related to this matching program that we are considering.

So I don't know if that helped you to understand the program.

Yeah, if I can also compliment this, we designed this at the IPO, to be honest. And we already had embedded that we were going to give this out over the last three years after the IPO. So it's a program that was already written. It was already there in our perspectives that Now, we were going to give out up to, the prospectus says up to 5% that we can actually give out in employee compensation. We haven't even reached half of that number yet, whatever. It's a very, very small number that we have. But yes, it's something that we have already incorporated in our numbers since 21, 22, 23, and we knew that we were going to actually effectively do this in the end of 23. So it was already a planned thing and already talked to our partners for a while now, for the last two, three years that we have been designing and talking to them about this program. What was the second part of your question again? I'm sorry, that was the first part.

Yes, the second part was very clear. Thank you for the answers. And the first part was just regarding the management fee rates as you reach Your target of 35 billion?

Yeah, I'm sorry about that. I should have answered. Well, as you can see in one of the pages of the presentation, it's 1.2, the number that you just mentioned. As we do close on the two M&As, I think they have slightly lower effective management fees than the 1.2. I think the number going forward is between 1.1 and 1.15. Anna, can you correct me if that number is correct, please?

Yeah, Alex, this is Josh. I think if you do the math, we gave some basic economics on the effective fee rates and the fee-earning AUM that we're bringing in on the two pending M&As. And I think if you do just the simple math based on our current blended rate and the blended rates implied by the economics that we gave, you'll get to a number that's between 1.0 and 1.1. All right.

That is great. Thank you for the answer.

Can I just add, when you do your assessment, of course, and building up into the model, the new acquisitions are bringing permanent capital and fee-paying AUM that is actually charged on NAV. So this is in terms of quality, visibility, and resilience. It's a very high quality. Just consider that when you think about the model.

Of course, will do.

Thank you. Please stand by for our next question. We have a follow-up question from the line of Craig Seigenthaler with Bank of America. Your line is open.

Alessandri, Marco, hope you're both doing well. This is Craig, so thanks for taking our follow-up.

Hey, Craig, how are you?

I'm good. Good to hear from you guys. So my follow up is on M&A. And, you know, you've been very active over the last couple of years with expansions in different geographies and products, Moneda, JV with Banco Columbia, VBI. But how do you think about existing capacity on the balance sheet and with your currency, the stock today to do more deals And I think you've been eyeing Mexico for a while. Maybe provide us a quick update on your thoughts on expanding into Mexico.

Marco, do you want to start that? Are you running a corporate development there?

Yeah, I'll kick off your new compliment. So remember what we always say when we think about acquisitions, we're buying products, channel, and distribution. So every time I start my answer is, with that with this because it's really part of our strategy uh so proud of doing six acquisitions and adding credit real estate meaningfully now gpms uh i'll start with your second piece of your question mexico it continues to be a priority continues to be a target so the explanation is mostly on execution we were not able to find the right asset to to start but we continue to be very excited we think it's a It's not only a very important geography and very complementary to the platform, but also a great opportunity with everything that's going on down there. Regarding the first part of your question, how we're going to fund our expansion, what we've been doing with our acquisitions is funding in a mix between cash and equity. Retaining a couple of flexibilities. So there's flexibility relative to when this cash is coming out. Most of the acquisitions have been structured with seller financing, so giving us time to generate the cash to pay for the acquisition. And in certain circumstances, we can opt between paying in cash or in equity at our favor, of course. So all that to give flexibility for us to be nimble when we design the strategy, we design the payment. In the last quarter, we announced one way to fund our acquisition, which is retaining part of the performance fees. I think we let that very clear, and I'll repeat here just for the sake of clarity. We're not touching on the FRE. We may selectively retain part of the performance fee in order to fund any cash necessities on the short term. So these tactical movements may occur in order to address the funding needs in the best way possible. And I'll defer to Ana to talk a little bit more about our cash flow. We do remain active in acquisitions. We mentioned in this call that this is going to be an important year of consolidation because we have two large pending M&As to be closed. The Aberdeen business by end of the first half and Credit Suisse business most likely by the end of this year, given the complexities and the particularities of the closing of this transaction. So not a lot of FRE coming through this year, but very solid FRE coming for next year. As a reminder, when we announced the Aberdeen transaction and the Credit Suisse transaction, we gave some guidances for you to work on how much this will bring into the platform. for the aberdeen business what we announced is a 7.8 billion feet in a one deal where where the the average fee is between 50 and 60 bits so the average management fee which will equate to a margin between 30 and 40 percent and for the pretty swiss deal what we announced is a 2.4 billion at the time of the closing with a 50 with a 70 bit as a management fee and around 50% of every contribution. Hopefully I answered your question.

If I can compliment Marco, I think, you know, going back to 2019 2020, And one of the main reasons of why the IPO already 2021, Greg, I think we saw this consolidation coming into place. I think we were kind of first movers with some few of our peers. And then we see some of our peers moving into this consolidation mode. You know the names of the major players in the industry buying, as Marco said, products. buying channel, buying geographic expertise. So I think we, a little humbleness here, but we were a little bit ahead of the peer group in that sense. Very important to consolidating the Latin American market and catering to our Latin clients and also catering to our international clients that want to come into LACAM. So we have a very interesting menu set today. of over 30 products that give us this ability to continue growing the platform very healthy and actually very comfortable today that we can actually deliver on the guidance that we gave late 22. So this is, you know, it was by strategy, not by chance that we're here today. Thank God. And I think we're well positioned here. And we want to continue to do more. I think we have a bigger balance sheet today and a bigger earning stream. And what I saw happening as well, and Marco leading this efforts, um, I think that, you know, a lot of general partners approaching us, uh, now more than three, four years ago, we're convinced that the consolidation is at play in our industry and willing to join forces, uh, with Patria, uh, because of no, no, everything that we can do for them on the fundraising side. on having a listed stock as a tool to attract talent and retain talent and to give the senior executives of this respective general partner liquidity in the future. So things that we saw a couple, four or five years ago, they're actually happening. And we are getting phone calls now, contrary to three, four years ago that we had to call people and explain what we were trying to do. So it's pretty interesting to see that happening. I think we're not the only ones getting calls in the industry because the consolidation is at play, but we're definitely getting calls in our part of the world, which is pretty nice to go through this process. Thank you.

Thank you, Alexandre.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Alex for closing remarks.

Well, again, thank you very much for your patience here. And it's an end-of-the-year call, so it's a little longer than usual. So thanks really, really for your patience and dedication to come to the call, participate in the call with your questions. We're so happy to take your questions. It's an honor to take your questions. And again, we feel very good beginning 2024 now in a strong pace. with the guidance that we already mentioned over the call here a couple of times. So feel free to contact us with any further questions, and hopefully we'll see each other in person in your conferences. And actually, sooner than later, we're going to have in the next 60 days another earnings call, and hopefully coming up with good, strong news on 2024. Thanks again for your patience. Thanks for the collaboration, and see you guys in person soon. Thank you, team, as well, and thank you, operators.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.