Patria Investments Limited

Good day and thank you for standing by. Welcome to the PATRA First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference call over to your first speaker for today, Andre Medina from PATRA's Shareholder Relations. Andre, please go ahead.

Thank you. Good morning everyone and welcome to PATRA's First Quarter 2024 Earnings Call. Speaking today on the call are our Chief Executive Officer, Alex Saig and our Chief Financial Officer, Anna Russo. We are also joined by our Chief Corporate Development Officer, Marco DiPolito and our Chief Economist, Luis Fernando Lopes 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 the investor relations section of our website or on form 6K filed with the Securities and Exchange Commission. This call is being webcast and a replay will be available. Before we begin, I would like to remind you that today's call may include forward-looking statements which are uncertain, do not guarantee future performance and undue reliance should not be placed on them. PATRA assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve inherent risks, including those discussed in the risk factor section of our latest form 20F annual report. Also note that no statement on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any PATRA fund. As a foreign private issue, PATRA reports financial results using International Financial Reporting Standards or IFRS, as opposed to US GAAP. Additionally, we would like to remind everyone that we will refer to certain non-GAAP measures which we believe are relevant in assessing the financial performance of the business, but which should not be considered in isolation from or a substitute for measures prepared in accordance with IFRS. Reconciliation of these measures to the most comparable IFRS measures are included in our earnings presentation. Now I'll turn the call over to Alex.

Thank you, André, and good morning, everyone. The first quarter of 2024 marked a great start for the year, and I'm very pleased with the performance we delivered. We generated $35.1 million of fee-related earnings in the quarter, representing a 13% increase from 1Q23, with only 20% of this growth coming from acquisitions. We delivered more than $31.3 million of distributable earnings, or 21 cents per share, and announced a quarterly dividend of 18 cents per share. We raised $1.1 billion year to date through April, and over $5.1 billion in the last 12 months. We are confident we are on track towards meeting our $5 billion fundraising target for the year. At the portfolio level, we generated solid investment performance, which helped offset the impact from realizations and FX movements. Generating strong investment returns for our fund investors remain our primary objective, and this strong performance continues to support our healthy net accrued performance fee balance of $514 million, or $3.41 per share as of March 31st. Total AUM and fee-earning AUM have grown more than 17% and 20% from one year ago, respectively, with only one third of this growth coming from acquisitions. This past Monday, we were thrilled to announce the closing of our acquisition of Arbordine's Private Equity Solutions business. As previously announced, the acquired platform, when combined with Patria's existing global private markets vehicles, will form a new vertical, Global Private Market Solutions, or GPMS, with aggregate fee-earning AUM of over $10 billion. We believe the breadth and scale of this new vertical positions Patria as a premier gateway to global private markets for underserved investors in Latam. Also on the M&A front, we are marking good progress towards closing the pending acquisition of Credit Suisse's real estate business in Brazil with up to $2.4 billion in fee-earning AUM as of 1Q24. We now have all the required regulatory approvals in place and expect to hold the necessary fund shareholder votes to approve the transfer of the management contracts. Driven by strong organic growth and our accretive acquisition strategy, we remain confident in our ability to deliver our previously communicated 2024 FRE target of $170 million, and our 2025 target of FRE in excess of $200 million, reflecting -over-year growth of 15% and over 17% respectively. Digging deeper in our expanding platform and pro forma for acquisition, our 1Q24 fee-earning AUM reached over $34 billion, representing over 4X growth in the three years since our IPO. Notably, pro forma for the acquisitions, permanent capital comprises about 20% of our fee-earning AUM up from insignificant levels at the time of our IPO. The expanding breadth, scope, and earnings power of our platform is highlighted by the fact that, number one, we have grown from a two-product asset manager at the time of our IPO into a diversified alternative manager with pro forma $34 billion of fee-earning AUM spanning across a range of strategies and investment vehicles, including private equity, infrastructure, credit, real estate, public equities, and global private market solutions. The recent launch of our infrastructure private credit fund highlights how we are leveraging our expanded platform to bring new and differentiated investment solutions to our clients. Two, we offer an expanding range of product structures in order to meet investor objectives and with permanent capital, drawdown funds, and SMAs representing over 70% of our fee-earning AUM, underscoring the inherent stickiness of our management fee revenues and fee-related earnings. Three, we are diversified across currencies and importantly, 70% of our pro forma fee-earning AUM is denominated in hard currencies, US dollars, British pounds, and euros. As we think about our path forward, it's important to emphasize that organic growth of existing and acquired investment platforms post acquisition remains our top priority. This is highlighted by the fact that from year end 2018 through 2023, our fee-earning AUM, excluding the initial influence of acquisitions, grew at a CAGR of 17%. While sensible organic growth is our top priority, diversification through inorganic expansion remains a key component of our strategy. We believe in the ongoing consolidation within the asset management industry and at many times, M&A is the most efficient way to capture new avenues of growth. It can speed time to market and allows us to capture the opportunities we see in the region through the addition of skilled and culturally aligned investment teams with strong investment track records, complimentary and differentiated investment strategies, and new distribution capability. In some instances, buying may also be cheaper than raising equivalent amounts of capital through placement agents. Overall, we are very proud of the differentiated and diversified investment platform we have built both organically and inorganically, making us the largest alternative asset management platform in the region in terms of direct assets under management, revenues, and fee-related earnings, as we remain very excited regarding our future growth prospects. Now let's have a closer look into our investment verticals. This past March, PrivateX International released its 2023 PEI Awards, ranking Patriot PrivateX as the firm of the year in Latin America. This was our second year of participation and the second win in a row. The award reflects the market recognition of consistent performance, sector knowledge, commitment, and leadership in Latin America. Investment performance excellence is highlighted by the 20-year pooled Net IIR in US dollars of our flagship private equity funds of 17.5%, as of the first Q24. For comparison purposes, as of 3Q23, the latest available market data from Cambridge Associates, our pooled performance was 18.3%, which represented .9% of excess returns over the past 20 years relative to Cambridge benchmark returns in Latam. Over the same period, Patriot PrivateX also generated excess returns relative to Cambridge benchmarks when compared to emerging markets, Asia, and the US. With excess returns over 7.1%, 7.2%, and 3.3%, respectively. In what remains a challenging private equity fundraising environment, the strong track record helps our fundraising efforts. In first Q24, we signed a new $65 million co-investment in our new vintage private equity fund, which is currently in the market. We have secured approximately $1.2 billion of commitments as of 1Q24 for our new vintage buyout fund with fundraising outperforming in Latam, Asia, and the Middle East, as the private equity fundraising environment in the US remains challenging. Nevertheless, we continue to see a path to reaching $2 billion of commitments. Beyond our flagship funds, our private equity platform, currently with $11.7 billion in AUM, also offers growth equity and venture capital funds, strategies that we did not offer at the time of our IPO. With regards to our infrastructure vertical and new product development, in 1Q24, we raised over $60 million for one of our infra-corporate funds with focus on mature energy distribution and transmission assets. This was the third capital raise for this specific vehicle, and it closed above our initial targets. This strategy, which represents permanent capital AUM, continues to gain scale and now totals more than $310 million in AUM. In contrast to the struggles many managers have been facing with regard to generating realizations, our flagship drawdown business has seen a pickup in realization activity for LPs, which is crucial driver of fundraising for our latest vintage flagship infrastructure fund, which is now in the market. As of 1Q24, we have already secured over $1 billion of commitments for the new fund and are making progress towards our goal of raising $2.5 billion. We believe the investment opportunity within infrastructure is very attractive and have already started to deploy this capital. To illustrate, in 1Q24, we announced a $110 million commitment to a greenfield solar plant in Columbia with a 360 megawatt installed capacity, representing the largest solar farm in the country with $300 million of projected capex. Also, the first announced investment from this fund, a toll road concession in the south of Brazil with a 30-year contract protected against inflation and a 20-year traffic history began operations during 1Q24 ahead of plan. Looking at investment returns as of 1Q24, the pooled net IIR in US dollars for our two latest vintage funds was 12.3%, outperforming the Hamilton Lane Global Infrastructure Medium benchmark and the Dow Jones-Brookfield Global Infrastructure Index by .1% and .4% respectively. Finally, in 1Q24, we contributed $50 million Brazilian reais or approximately $10 million out of a limited capital exposure of $100 million reais or approximately $20 million in order to provide sea capital to TRIA, our new and separate energy trading company. TRIA was created to access a high growth opportunity we see in a fragmented sector with compelling fundamentals. We believe Patria's investment scene has the skill set and expertise to help build this business, which has significant synergies with our infrastructure portfolio companies. Patria, through its seed capital investment, holds a 67% stake in TRIA, which began its operations this April. Other shareholders include four well-respected minority partners with recognized expertise in energy trading. Over time, our goal is to develop TRIA into an asset management business with the intention to raise private credit vehicles to fund both power generators and consumers with energy-backed contracts. Our credit vertical continues to generate strong and consistent returns to our investors. As of 1Q24, our three largest strategies, Latam high yields, Latam local currency, and Chilean fixed income have each outperformed their relevant benchmarks for all reported periods. 1Q24, one year, three years, five years, and since inception. Specifically, our Latam high yield strategy with $3.6 billion in AUM has outperformed its relevant benchmark by more than 370 basis points since inception in early 2000. In the last 12 months, we raised over $900 million for our credit products, including approximately $300 million in 1Q24. Fee-earning AUM grew more than 19% organically from one year ago and more than 4% sequentially. In addition to the three aforementioned strategies, Patriot's diversified credit platform with approximately $6 billion in AUM offers funds in private credit, infra-private credit, and receivables. Private credit strategies continue to see strong momentum globally, and expanding this vertical both organically and potentially through M&A remains a key priority. To illustrate, we are currently raising a US dollar denominated Latam-focused private credit fund with a first closing expected for the second quarter of this year. We hope to have more news on this soon. Turning now to public equities, let me take a moment here to congratulate Pablo Echevria, Moneda's founder and head of Patriot's public equities. For our Pionero Fund, for which Pablo has been the portfolio manager since its inception. Focused on small and medium-sized companies in Chile, Pionero reached its 30th anniversary this March with impressive performance along the way, including a .6% return in the past 12 months and a .5% annualized return since inception which translates into a 45 times multiple for capital invested in day one. This investment platform with 2.8 billion in AUM offers a range of products including Pan Latam, large and small caps, as well as Chilean large and small caps, and private investments in public equities or PIPE. With regard to PIPE, we were very pleased to launch our PIPE Chile this quarter and closed and fund with an initial $55 million raised in 1Q24 and which we believe is well positioned to scale. Focusing on our next vertical, real estate fundraising continues a solid path. Over the past 12 months, we generated over $1 billion of organic inflows and total AUM reached $3.8 billion. For perspective, as of 1Q23, AUM totaled $1.6 billion. This organic growth included a strong 1Q24 with $235 million of new capital raised. Beyond the attractive organic growth, we continue to pursue what we believe to be great opportunities to consolidate the real estate investment trust market in the region. In November 2023, we closed our new partnership with Bank Columbia, adding a $1.4 billion real estate investment trust and best in class distribution capabilities in the Colombian market. One month later, we announced the agreement to acquire Credit Suisse Real Estate Business in Brazil or CSHG Real Estate, a platform with $2.4 billion in assets under management. Altogether, we have grown our real estate vertical to pro forma AUM of over $6 billion with approximately 90% being permanent capital. Finally, let's do a quick overview of our newest platform, Global Private Market Solutions or GPMS. This new vertical focuses on serving clients as a gateway to private markets on a global scale through proprietary and third party products. On the proprietary front, we currently offer primaries, secondaries, and co-investment strategies across various drawdown funds and listed vehicles, which are permanent capital, in addition to separately managed accounts or SMAs. With a 10 to 15 year track record, these three strategies, primaries, secondaries, and co-investments have generated consistent and strong returns with pooled IIRs in euros of 18%, 20%, and 20% since inception and as of 2Q23 respectively. On a pro forma basis, it manages over $8 billion in fee earning AUM, in addition to the recently acquired business as 1Q24, Patria managed $1.9 billion of fee earning AUM in third party funds, of which $1.5 billion were through feeder funds that direct Latin American capital to global private markets, a business we have been active in for over a decade. The feeder fund business has raised over $300 million in the last 12 months, with approximately $60 million raised in 1Q24. In aggregate, our GPMS platform is being launched with over $10 billion in fee earning AUM and represents a complimentary pillar of growth as we serve as a gateway for Latin American investors to private markets on a global scale. Before I handle the call over to Anna to give you more details on the numbers for the quarter, let me take a quick moment to give another perspective on the diversification of our vectors of growth. Prior to our IPO, close to $7 billion of our total $8 billion of fee earning AUM, or over 85%, served global clients looking to invest in PEN-LATAM alternatives. Today, pro forma for the pending CSHG real estate deal of our $34 billion in fee earning AUM, approximately 35% continues to be sourced from global clients looking to invest in PEN-LATAM alternatives. 35% is sourced from local clients seeking to invest in regional strategies. 25% is from local investors focused on local alternative products. And finally, 5% comes from local clients investing in global alternatives. I believe this clearly illustrates the amazing job this team has been doing on executing our growth plans and diversifying our business. Now, I turn the call over to Anna.

Thank you, Alex, and good morning, everyone. It was indeed a great start of the year as Pachter continues to deliver steady and strong results. As we grow and diversify our platforms, it is important to maintain and enhance the comparability of our KPIs and metrics with those of our peers. And with that in mind, we will classify two line items on our non-GAP PNL, which had no significant impact on our reporter results. First, rebates originally under the expense line, placement fee, amortization, and rebates are now directly deducted from fee revenues as a contra revenue item, making our fee revenues more comparable with peers. This has no impact on reporter fee related earnings, but does slightly increase our reporter FIE margin by around 2.3 percentage points in first quarter 24. And 1.6 percentage points in 2023. Second, unrealized gains and losses were reclassified below distributive earnings. And this makes our DE even closer to a cash-based metric. Further details on these two reclassifications can be found on our earnings presentations, which among other things, highlights that $1.5 million of unrealized gains that were moved from net financial income and expense to new line called unrealized gains, losses on investment below DE would have decreased 2023 distributive earnings per share by only a pinch. As mentioned by Alex, following the completion of the acquisition of the private equity solutions business from Aberdeen, we have now launched a new vertical, global private market solutions or GPMF. This vertical with pro forma fee earnings AUM over $10 billion also includes $1.9 billion from our third party distribution business, which was previously under advisory and distribution. As detailed on our earnings presentation, the remaining assets in advisory and distribution will be reallocated to other asset classes. With that, Patras platform will be based in six verticals. Private equity, infrastructure, credit, real estate, public equity and global private market solutions. Let's now review the results for the first quarter. Q1 2024, fee related earnings of $35.1 million was up 13% versus Q1 2023 with a margin of 58%, reflecting an increase of 2.3 percentage points compared to last year after adjusting for the expense reclassification noted earlier. Q1 2024 FRE was leading nine with Q4 2023 when excluding the seasonal and one time impacts from fourth quarter of 2023 as our FRE continues its growth path. Total fee revenues in Q1 2024 increased by $4.5 million or 8% from Q1 2023 to $6.6 million. This increase was mainly driven by growth in credit fee earnings AOM as a result of net inflows and appreciation in our credit fund, which drove an approximate 20% increase in related fee. Higher year over year fee revenue also benefited from the November 23 closing of our partnership with Banco Longi and new commitments and deployments in private equity fund seven, which continues to fundraise. Excluding Q4 2023 one time impacts, our fee revenues continue to grow sequentially. This one time impact were one, crystallization of incentive fees of $4 million in our credit and public equity verticals and two, one time management fees catch up of 2.5 million for private equity funds. Total operating expenses for personal expenses plus GME were $24.8 million for the quarter, mostly in line with Q1 2023 adjusted to reflect the reclassification noted earlier. But the delivered distributor earnings of $31.3 million in Q1 2024 equating to 21 cents per share, 7.7 million lower than the first quarter of 2023, fully driven by $10 million of performance related earnings in Q1 23. We also crystallized 26.6 million of performance related earnings in Q4 23, which drove the variance versus the current quarter in addition to the one time impact of FRE mentioned before. Additionally, corporate income tax rose this quarter to $2.8 million when compared to 1.1 million in Q1 23, mainly due to the larger contribution from our business in Chile, Brazil and Colombia. We declared dividend per share of 18 cents for Q1 24, which will reflect an 85% payout ratio. As mentioned previously, beginning 2024, we expect to distribute 85% of our distributed earnings, excluding performance related earnings and realize gains from energy trading platform, Net of Taxes, up to $100 million in order to fund M&A obligations and pay down debt. Going forward, we will continue to evaluate our distribution policy with a focus on, one, paying a stable and growing dividend driven by fee related earnings and two, maintaining our balance sheet strength with an appropriate amount of leverage and ability to pursue acquisitions and reinvest on the list. Our March 2024 balance sheet shows $83.4 million of debt with the majority reflecting our long-term financing line and 10 million from our revolving credit facility. This debt was incurred to fund the first tranche of our acquisition of real estate business from credit suites including related expense. Future obligations will be funded by a combination of cash, debt and equity. In regard to equity, based on our pending closing M&A, we expect to issue less than 4 million shares throughout the year, which would result in less than 156 million shares in aggregate at the year end. Based on our FRE target for 2024, this implies an FRE between $1.08 and $1.12 per share. Between 10 and 12% higher than 2023 FRE per share of 99 cents. However, the full year benefit of the closing M&A will only take place in 2025, where our FRE target ranges between 200 and $225 million. That give us an FRE per share between $1.25 and $1.40 already including any additional expected share issuance. Therefore, our compounded growth between 2023 and 2025 in FRE per share could be up to 40%. Net accrual performances were up almost 20% versus Q123, reaching $514 million with over $300 million coming from our two most mature funds, Infrastructure Fund 3, currently under catch up phase and Private Equity Fund 5, also under Harvard's influence. Despite strong underlying performance, quarter over quarter net accrual performance will decrease by 4%, mainly by share price of our publicly listed companies and current. Due to accrual now, we present $3.41 per share. As we progress in the year, we expect our management fee revenues to be supported by ongoing fee earning AUM inflows across the platform, particularly in credit driven by inflows and performance, fundraising in real estate, deployment and infrastructure files, in addition to new acquisition. As a result, we remain confident in reaching our $170 million FRE goal for this year, assuming a margin between 56 and 58%. This is likely lower margin reflect the nature of our newly acquired and pending acquisition. We expect FRE growth to be back and loaded towards the second half of 2024, due to the combination of organic growth and the timing of the closing of our acquisitions. I will now turn back to Alex for closing remarks.

Thank you, Ana. One last thing before we start the Q&A. In light of our great 1Q24 results, multiple organic growth initiatives, the closing of our acquisition of the Private Access Solutions business from Aberdeen, and the good progression towards the closing of the CSHG real estate deal, I am even more confident we will reach both our financial and AUM targets. We are comfortable in getting our fee related earnings to at least $170 million this year, on the way to more than $200 million in 2025. As we embark on our next chapter of growth, we look forward to sharing more details with you at our next PAX Investor Day expected for later this year. We thank you for your time and are happy to take your questions.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Your first question comes from the line of Craig of Bank of America. Craig, please go ahead.

Hey, good morning, it's Craig Seegansar from Bank of America. Alessandro and Marco, I hope you're both doing well.

Hi, Craig, how are you? Thanks for participating, we're all well here. Thanks a lot. Hope you're doing

good. So our first question is on fundraising. You raised 1.1 billion on the quarter, you're on the way to the $5 billion target this year. Based on recent client conversations and marketing schedules, how do you expect the remaining roughly 4 billion to come in during the year? And should we expect lumpy flows certain quarters when you have a larger close with private equity seven and infrastructure five when those get announced?

Hi, Craig, how are you? I think I would divide the 4 billion equity between the next three quarters. Our history shows that the third and fourth quarter are a little hotter, we raise a little bit more money. I think that's basically human nature, I think it gets to the second semester, everybody has drives and goals to meet. And so, and we also are sales team also has goals to meet. So they actually push a little harder. But the first quarter is normally a little slower because people come back from end of year vacation, whatever, so that has been our tradition and for the last 20 years, to be honest. So I think it's gonna be more or less the same pattern this year. Over the last 12 months, we raised 5.1 billion. So this quarter until the second quarter of 23. And I think we're gonna maintain the same pace. So again, I will divide the 4 billion equally. We have these chunky, as you mentioned, fundraising for infrastructure, Fund 5 and private equity Fund 7. But I think they're gonna be evenly distributed as we see our, as you said, our schedule of road trolls. And people that are very, very advanced in their diligence, going to credit, to their investment committees, et cetera. We definitely see things moving more or less equally over the next three quarters, correct.

Alishadri, thank you. Just for my follow-up, you guys have been very active on the M&A front, arguably more active than I think anyone predicted two years ago. And you're clearly consolidating the private markets industry in Littam. But I wanted to get an update on how your objectives have evolved and how you think about dry powder given cash, debt capacity and the stock currency today.

No, okay, thank you. Yes, I think definitely we, I think we manage and we are trying hard to... Are you guys there? Can you hear? Yeah, I can hear you. Ah, wow, I just heard a sound. I thought that the line had gone down. So going back here and repeating myself for one second. Yes, we have been managing to consolidate the market in Littam. I think this is very, very important. As you know, most of our clients are global institutional clients and local institutional clients. And they wanna have a smaller number of relationships globally and locally. So we would like to be that one relationship in Littam, one or two relationships in Littam. And we wanna offer these clients not only one product of one asset class, but several products of one asset class and products of several other asset classes as well, as you saw our diversification. I think we are very well placed with what we already acquired, putting us in a very good position to continue expanding organically. And most of what we did over this earnings, fee related earnings increase over the last four quarters were organically driven, given that we did not close any major acquisitions last year. We signed, but we did not close. And we closed the Aberdeen Global Private Market Solution Business Acquisition in April. So it was not included in the quarter of 24. So with that, I think we are very well placed. We might do other minor acquisitions, but not major. The only market still pending for us to come in, to go into is Mexico within Littam. We do of course sell our products to Mexican institutional investors, but we don't have an asset management business there with local products in Mexico, as we now have in Colombia, Chile and Brazil. There, I think we're looking to get into that market and trying to find the right way and the right asset class. As we mentioned in previous calls, I think real estate is one that actually does favor our entrance there because they have, in Mexico they have a reasonably sizable market of real estate investment trusts, around $50 billion real estate investment trust market. So that would be the move, but nothing as major, I think as the credits with real estate business or the Aberdeen Global Private Market Solutions Business Act. As far as dilution of shares, I think Anna came during her call, I think she tried to give you guys, all of us, fee related earnings per share. And we did end 2023 with a fee related earnings per share of 99 cents of a dollar. And I think we talked to personally Greg about that, and I think even you say, well it would be great if you guys gave a fee related earnings per share, but that of course would include not only the fee related earnings in absolute dollar amounts, but also your guys projections of shares issuance. And so the fee related earnings per share combines those two numbers. So 24 we're expecting, one away to 112, so an increase over the 99 cents, which is the 170 million divided by the number of shares that we expect to have by the end of the year because we're gonna issue some shares to do acquisitions between now to pay the acquisition that we already did between now and the end of the year. So that's approximately three, four million shares, you add to the number of shares that we have today in the base, then you give, now you use a 170 million dollar number, it gives one away to 112. As you know, this year we are managing actually to close on the acquisitions earlier than we expect. So we see that the probability of us reaching the 170 million dollar number is increasing as we walk along the year, walk along the year, and I'll give you more news in the second quarter. If the second quarter we do actually have the creditors real estate funds transferred to us, I think that probability will increase even more and we get very, that's why I'm saying here that now I'm saying that at least 170 million dollars of fee related earnings this year, not the target I'm saying at least because of everything that I said. When we look into 25 and what do I use, what will I like to use a fee related earnings per share in 25 because we are issuing the shares to pay for the acquisitions and it's very important that we do pay with acquisitions because then we retain those very good managers now because these shares that these managers receive, the managers that are selling their businesses have a long lockup of five years. So I need to use that, I could use more cash but it's also very strategic for us to use the shares. But we have to issue the shares, give those shares to those people and then the results don't come in day one but the shares dilution come in day one. So when I look into 2025, when I have the full benefits of the whole year of the results of these businesses that we bought in our P&L running through our P&L and the 200 and 225 million dollars of FRE guidance and again the chances that we're gonna hit are becoming higher and higher as we close these acquisitions is $1.25 to $1.40 per share, FRE per share. So when we compare the 99 cents of FRE per share in 2023 and $1.25 to $1.40, we can see in a way 30, 40% increase over two years or whatever, 15, 20% increase per year on a compounded basis. And I'm saying here that at least we're gonna do these numbers because of everything that we've been able to do. So it is, I think that hopefully by giving an FRE per share target as well will help you guys, everybody to see our expectation of share dilutions, correct.

Alessandro, thank you.

Thank

you. One moment for your next question. Thank you. The next question comes from the line of William from Actiao BBA. William, please go ahead.

Good morning everyone. Thank you for taking my question. So I would just like to confirm some information about the two recently announced MNAs. So regarding the averaging one, I have a question too, when should we expect it to show in your FRE numbers? So can I consider already the two last months of the second quarter of this year, or will there be any deferment to the numbers? And just confirming on the CS real estate acquisition, if I can only expect to see FRE improvements regarding this one in 2025.

William, thank you very much for your question. This is Alex again here. Yes, for the May and June question on the Aberdeen numbers, we did close this last Monday, the 28th of April. So as of 1st of May, we will then incorporate those numbers in our P&L, they're gonna run through our P&L. And yes, as you know, the Aberdeen business has a positive FRE. Remembering that we mentioned that just going over, don't wanna be redundant with you, we're just going over to fresh our minds here. It's an $8 billion fee pay AOM business, if we consider that it has around 35 basis of this, no, go ahead, Mark, why don't you say more? It's Mark is here with us and I

think he can continue here. So 30 to the last. 30 to 40 basis points, $8 billion of a fee pay AOM, that gives you a guidance of the fee paid AOM accretion.

Thank you. With 30%, this is Anna, 30% margin. So we have approximately, we're still looking to a full year in fact about 11 million. That's what we're talking about. And if we basically look into a per quarter base, we are talking about like a 5.5 million approximately of FRE in terms of quarter base. But as Alex mentioned, it's two months that we're gonna consider as of May, which is gonna be already counting in our results.

That's perfect. And then for your second question, I think the conservatively we are expecting the fee related earnings from the credit Swiss real estate business as of 25 or end of 24, which basically insignificant, but 25 onwards. So conservatively that's what I suggest to use William. We are in the middle of the process of transferring the funds from the credit Swiss administration to our administration. As you know, we have to do these shareholders meetings and we are now going through the process. The process is going fine. We got all the, of course, all the competition's precedents were in place. So we started these shareholders agreements process and everything again is moving okay, but it's very hard to say where we're gonna land. So conservatively, I would say 2025. I'll keep you guys updated on that and as we move along the quarter, but I will start with 2025 as a baseline. Okay? Okay, very clear. Thank you, Alex, Marco and Ana. Thank you.

One moment for your next question. Your next question comes from the line of BHs from Goldman Sachs. BHs, please go ahead.

Hi, everyone. Good morning. Thank you for the call. So my question is on expenses. So we saw an increase in both personnel and GNA expenses this quarter. If you could give us a little bit more color on what happened there and if we should expect that as a normalized level going forward. And maybe as a second question, you should be reflecting Aberdeen's acquisition in the last two months of this quarter to Q now that it's closed. And that certainly should add more variables to the equation, but what are you expecting in terms of FRE margin going forward?

Thank

you.

Okay, hi. Good morning. This is Ana. So I just want to refer as well to our deck just so we are clear with the numbers we are looking at. So our personal expense line go from Q1, 2023 of 16.8 to 16 million. And our GNA has an increase of from 7.6 to 8.8. So when we look into overall, there is a slight increase of 0.4 overall when we talk about operating expenses. But in terms of personnel expenses, there is a positive impact or likely almost as we got, what we mentioned out that these could be our proxy for the next quarter as we mentioned last quarter, 16 million includes our equity compensation program. It's likely, and also there is, as we progress in our business, some outsourcing from personal expenses to GNA. Also our GNA includes, as we mentioned, this quarter more investment on the business. We have a higher marketing and commercial activities which is reflected in GNA. This is sometimes when we're looking to the year is seasonal because there are some quarters that are, we have more activities than the others. So you can see that there are related expenses. And on top of that, this quarter we have, we are accounting for fully expensive compared to the first quarter, 2023, up on Columbia, which impacts both revenue and the expenses line as well. So this also includes some in, when we talk about inorganic expenses.

I think the second question was on the FRE margin.

On, if we look into, so what we mentioned during the, actually on my speech that we think that the margin could be between 56 and 58% for the year, that mostly is accounting for the nature of the new business we are including, we are acquiring, which has a lower FRE margin than our current business. That's the reason we also, when I mentioned about going forward, we think that there is a consolidation phase, what this, in the future, this margin should actually progressively going up. But for this year, we think about it between 56 and 58%.

Yeah, what has happened over the last years, the actually, and this is Alex here, and again, thanks for your question, thanks for participating. We had, as when we went public, a margin of around 60%, or 60.961. And then as we did the Moneda acquisition, the margins came down to around 55, 56. And then we did, of course, run after the synergies, margins went back up to close to 60, and then we did other acquisitions, margins came down a little bit, and then last year, the margins were around 61% again. As you may recall, we have not closed on any acquisitions last year, so it was an era of integration that we managed to push the margin for the whole year of 2023 back to over 60. So this year, I think, and next year, 2025, I think it's gonna be the same fast, and this year is gonna be a little stressed downward, as I just mentioned, 56 to 58, because we are taking on these acquisitions, we have redundancies in the first moments, and we have a little lower margins in the first moment, because the businesses that we acquired were run by these other firms that own them, Credit Suisse and Aberdeen, differently with lower margins. And as we put them into our business and incorporate, we gained synergy, so I definitely see that we're gonna go back to the 60% margins as we look into 2025 onwards. But this year, specifically, because of these two acquisitions, margin a little bit compressed downwards. But we already identified, to be honest, this is what we do for a living in our private equity shop. We did over 300 acquisitions, we consolidated more than, I don't know how many sectors, you probably know the story there, and so we feel very comfortable in this model of doing acquisition, and then we have integration of systems, integration of processes, integration of culture and people, and then we bring margins back up. It's something that I did as a CEO of several of our portfolio companies in the private equity, the asset class and what I'm doing now here with the same team, Marco, Ricardo, Danielle and Ana and whatever. So we feel comfortable with this model, with this model, and feel comfortable we're gonna get back to the 60% margin next year and going forward, thank you.

Just for the sake of clarity here, this is Marco. As you build up your model, and you look to your presentation on page 13 where you have asset by asset, as Ana put, we have reclassed the asset and now you see GPMF there with 1.9 billion. What you're gonna see in the next quarter is we're gonna aggregate 8 billion to that 1.9, or at least 8 billion, and the average fee-paying a WAM is 50 to 60, and the margin is between 30 and 40. So what you're gonna see is a 60 basis point, and the margin, the FRE margin is 30 to 40. So I thought it would be important to provide full clarity here as you build up your model.

And I think if I, final comment here Beatriz, I think no longer answer to your question, but I think we'd like to add another comment here before we turn to another question. The whole idea was back then prior to IPO, to the IPO I think is to have other asset classes that for battery are significant and has a scale and therefore also has margins. So with the private equity was already there, and we already had the reasonable big asset class at that time, it was around 45% of the 8 billion fee-paying a WAM, now it's around 11, so it basically doubled, more than doubled. Infrastructure the same, they're sizeable, and we reach more size, and with the new vintage fund, infrastructure fund five, even more so. Then we built a very significant credit vertical, that's around $6 billion today, and with fundraising should end the year with around $7 billion of fee-paying a WAM there in credit, where we have a good amount of private credit, infra-private credit, mid-market high-yield Brazil private credit. Now we have a dollar denominated, Latam private credit, all of these products we launched, of course, agricultural receivables, discounts, private credit fund in Brazil, we launched, of course, with the intelligence of our Chilean partners, so that's gonna become a 7 billion, and I see that asset class also moving ahead of 10, together with the private equity over 10, infrastructure over 10. Then comes the real estate, and we did several acquisitions there, with the VBI acquisitions that we did, and also the Credit Suisse real estate acquisition that we did, it's already a 6, 7 billion dollar asset class, and I see that also going to over 10. We haven't even touched Mexico, as I mentioned earlier here in this call today, the real estate investment trust market in Mexico is a $50 billion market, and I think it's very ripe for us to participate in that market. Finally, now, GPMs already starting with over 10 billion dollars, so another, so that's asset class number five that I see, now 10 billion dollar plus in the near future, with very, very good margins, because that kind of numbers that I gave you gives scale, and we manage then to push margins back to the 60%. So private equity, infrastructure, credit, real estate, and GPMs, so that's what we're trying to do, instead of having one or two asset classes that were significant for us, private equity, again, 45% of 8 billion, infrastructure was also around 45% of the 8 billion at IPO, we have five asset classes that I see 10 billion plus going forward, with very good margins, and very scalable in like that. So that was the whole strategy, going to other asset classes that we have a very large, tangible, addressable market that we can become significant, that we can scale up with a magic number that I gave you 10 billion dollar plus, and with that margins come up again, to the 60% FRE margin. So that's the whole, that's the vision, and I think we're there, now it's more execution. I think we already have our major asset classes acquisitions done, as I responded to Craig, earlier in this call here today. Thank you Beatrice, sorry about the long answering.

Thank you Alex, very thorough, very clear, thank you Marklin, and also.

One moment for your final question. Your final question comes from the line of Ricardo, from BTG Patuel. Ricardo, please go ahead.

Good morning everyone, I have a couple of questions on my side. First, we saw that during the quarter, management field over the fear in the web declined around 12 bits to .07% in Q1. So I wanted to understand what happened there, if it's something because of mixed, if it's something because of an adjustment in certain segments, and why the sustainable level would be assuming the Aberdeen acquisition, and without just for us to see what happened, right? And also, now that the Aberdeen acquisition is approved, I imagine that capturing all the top line synergies should take some time, right? So I wanted to understand a little bit more on what environment the company is right now in terms of inflows, in terms of the UN growth, especially for this year. Thank you.

Okay, thank you very much Ricardo, thanks for participating here in our call. Okay, so the management fee yields, as you saw here, for everybody to be in the same page, it's page 13 of the presentation. Yes, I think it's a question of mixed, so answering your question. As we gave the guidance that we were gonna raise around $5 billion in 2023, we raised $4.8 billion. We gave those numbers in our fourth quarter, 23 call in February, and we raised within that $4.8 billion more real estate than we expected, more credit than we expected, and those two asset classes, if you look here through page 13, I'm sorry, you see that these two asset classes do have a relatively lower fee than the other asset classes as compared to private equity and infrastructure. As we do, we raised a lot of infrastructure as well, but we have to deploy the money. For real estate and for credit, Ricardo, as we raise the money, we already start charging fees because we charge on the NAV. Most of these funds are listed funds, which in the case of the real estate investment trust, the FEEs in Brazil, as you know, and in credit, as you raise the money, is you already start charging fees on that amount. Infrastructure, we did raise, and private equity as well, a substantial amount of money as well, but you have to invest that money to charge fees because we charge on investing. So as we then invest the money throughout 2024, the money that was raised in 2023, then we will see the margins pick up a little bit because of that, sorry, the average effective management fee rates. But going to your other question, which is important here, as we do the GPMS acquisition that has, as Marco mentioned a couple of minutes ago, a lower fee, where do we land with all these movements? Now we're gonna, our view is that we're gonna land 2024 with a very similar effective management fee rate that we have here today because we're gonna be investing, as I mentioned, private equity and infrastructure that we raised that has a little higher fees, but we will then incorporate GPMS that has a little lower fees. So as we do our projections here, Ricardo, we're gonna land 2024 with similar numbers that you saw here on page 13, okay? Because these are the two events here pushing a little bit the effective management fee rates up with the GPMS pushing the effective management fee rates a little down. On the AUM growth for GPMS, we were very conservative, so we didn't project much for this year because it's a carve out business. So we know the whole, taking on a business that you're carving out from another business is different than buying the business by itself because there are more complications there on the system side, on the integration side, et cetera. And we had, I'm congratulating Erna here on her team, a flawless execution of that. Monday, everybody was up and working under our systems. They were already having our, managing to collect all of their prior data. We have over 14 terabytes of information transfer from our, our system, blah, blah, blah, blah. So it's a great preparation. And not only I congratulate Erna on her team, but I also thank the Aberdeen team that actually worked with us so digitally. There were no really great guys with a very positive agenda wanting to make this thing actually do go as best as possible. Very organized firm and very prepared, the firm, the Aberdeen. But, so we didn't project much. However, as we did talk to the investors, and here's interesting to say that 100% of the investors approved the change of control, 100%. Now it's hard to get 100% in anything, right? So all of the investors were in favor and supporting. We could not fundraise during that period up to this Monday, Ricardo, because we had not closed the deal. However, of course, you're there talking to LPs and to investors and asking them to approve the change of control. We also asked them their appetite for supporting us in the near future. And we got very positive results from those conversations. So we were very pleased that not only they, 100% of them approved the change of control, but the feedback that we got from them was very positive. Now, if you guys come out to the market, we would support you, blah, blah, blah. It has to do as well with the fact that secondaries and primaries and co-invest, mainly secondaries, is a hot product at the moment, right? Credit, real estate in Brazil, because interest rates are projecting to come down, and GPMS mainly secondaries, right? Because we are here, the secondaries, as you know, is actually giving liquidity to general partners and LPs that are willing to come out of funds, given that DPI has been slower globally. These GPs and LPs are looking for liquidity, and that's how a secondary fund comes in and provides that liquidity. So that's why it's a sought after product, right? Because it's the moment for secondaries, for credit, because of the high interest rates, real estate in Brazil, because interest rates are coming down, and you probably followed our real estate investment trust. We're trading at a small discount, a year, year and a half ago, of 10 to 15%. Now they're trading at a premium. And number three, secondaries, right? So of course they liked the team, because 100% of them approved the change of control. Of course they said they're gonna support us, which was very, very good, and also it has to do with the fact that it's a hot product under this market environment that we're living, okay? Now, as the closing happened, we are gonna be able to do official fundraising, because we couldn't, we were prohibited by the regulatory authorities, and we're gonna have a better view. And I'll keep you guys posted, but we were very pleased. As far as our projections are concerned, again, just to repeat, we were conservative and we did not project much fundraising for this product

this year. So complement one topic here, bear in mind that most of this fee pay in AUM is paying fees over NAV, and the natural appreciation of the assets will incorporate into the revenue of the business. So that's also, and because the unit has been performing quite well, with 20% returns on secondaries and co-investments, and about 16% returns on primaries, that is a meaningful contribution to the fee pay neighbor.

I hope I answered your question. Yes, so if I may do a quick follow up here on another topic, we saw that during the quarter, the level of deployment in private equity and infrastructure declined a little bit. So it was like, it was previously around $100 million and was around 400 million, if I'm not mistaken. So I wanted to understand if that is something that a deceleration that happened only for a quarter, and we should see the pace closer to the previous quarters going forward, or we should see like kind of a more structured deceleration in terms of deployment?

No, it's just a coincidence that it happened in this quarter, what you just described, Ricardo. There's nothing more to it, to be honest. And I think there is, in general, you're gonna see the first quarters are a little slower. And again, don't ask me why, but I think that the big human nature factor there, people get close to the end of the year, they wanna close the deal, they have goals to meet, and not only the seller wants to sell, the buyer wants to buy her, and the advisor wants to get their fees, so everybody kind of pushes in the right direction to close the deal. And then the first quarter is normally quieter, but that's more or less the path. Even on the privatization and concessions, maybe the government has the same kind of human nature, a trade, they don't do much concessions and privatizations in January and February, I think it has to do with everything that I said. So that the years start picking up as of March, April, it's a natural circumstance, nothing to report there, besides it's something natural, nothing structural going on.

Got it, very, very clear, thank you guys.

Yeah, thank you. As they say, Ricardo, Brazil starts after carnival, right?

This concludes the question and answer session.

Sorry, sorry operator, I interrupted you, but go ahead operator, I'm sorry, thank you.

That's okay, sorry. This concludes the question and answer session. I would now like to turn it back to Alex Sague for closing remarks.

Well, thank you very much. I think the final message here again is FRE per share, that's I think number one, two, three message here. Growing FRE per share very healthily this year versus next. And again, the FRE per share for this year of 108 to $112 per share compared to 99 cents last year is affected by the fact that we issue the shares but we don't get the full benefit of the acquired assets. So as you look into next year, 2025, that we have the full year of the acquired assets running through our P&L and of course, then reflecting then in our FRE, we go with projecting 125 FRE dollars per share and to 140 FRE dollars per share, which is the 200 to $225 million FRE numbers that I gave you guys. And I'm very confident with those numbers but even if we look at these numbers here, the 140, the 225 versus the 99 cents, now we are increasing FRE per share by 40% between these two years, 24, 25. And so we're comfortable there, we're comfortable we're gonna hit the numbers. I think using the FRE per share, I think answers a lot of the questions of potential dilution for acquisitions. And going back to the strategic instruments of using shares for acquisitions, is not a question of just capital structure, is strategically important for us to retain the manager, the portfolio manager that come along to these acquisitions as we do lock up the shares for five years, et cetera. So we have, it is a very important instrument, compensation, retention and acquisition instruments. Even if we had all the money possible in the world in our balance sheets, I think we would still use some shares in order to retain those people as we are a very people driven business. So thank you very much again for your time. And I know there was a very, very busy day today. So you guys being here in our call is an honor to us because other of our peers are and other companies are releasing their results. So again, thanks for your patience, thanks for your support. I hope to see you guys in person. Thank you, bye bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.