Patria Investments Ltd Q1 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Patria First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Josh Wood, Head of Shareholder Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Patria's first quarter 2021 earnings call. Joining on the call today are our Chief Executive Officer, Alex Saigh; and our Chief Financial Officer, Marco D'Ippolito. Earlier this morning, we issued a press release and earnings presentation detailing our first quarter 2021 results, which you can find posted on our Investor Relations website at ir.patria.com or on Form 6-K 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 Form 20-F Annual Report filed last month. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards or IFRS as opposed to U.S. GAAP. Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable measures calculated in accordance with IFRS are included in our earnings presentation. As a quick overview of the results, Patria has generated $13.1 million in IFRS net income in Q1 2021. On key non-GAAP measures for the first quarter, fee-related earnings were $17.3 million and distributable earnings were $17 million, or $0.125 per share. In alignment with our policy, we declared a dividend of $0.106 per share payable on June 16 to shareholders of record as of June 2. With that, I'll now turn the call over to our Chief Executive Officer, Alex Saigh. Alex?

Thank you, Josh. Good morning, everyone, and thank you for joining us today. We are very pleased with our first quarter results, which reflect solid execution across our investment platform. We are not only on track but also leveraging current opportunities to deploy and commit larger amounts of capital into new investments, which accelerates our progress on key growth drivers for the firm. Our portfolio companies are performing very well, demonstrating the resilience of our investment approach and our ability to deliver outstanding returns to our LPs through many different environments. In private equity, we are delivering 750 basis points of outperformance relative to the emerging markets benchmark, and our portfolio companies have capitalized on recent opportunities from consolidation, completing a total of 34 M&A transactions in 2020, for example. In infrastructure, our investment opportunity is vast, and we have mapped about $80 billion in long-term development needs across Latin America, especially in Brazil, Chile, Colombia, and Peru. We are seeing record levels of government concessions, and Patria is well positioned to be a selective bidder and win projects with very attractive return profiles. Now, clearly, the entire world is emerging from a health and economic crisis, and Latin America is emerging along with it. The latest pandemic data shows encouraging trends suggesting that we may have turned a significant corner with new cases and deaths both receding significantly from their highs in late April. There has also been substantial progress in the immunization programs with over 110 million vaccines given in the region. There is no question the second wave and recent environment has been difficult for society and many businesses. And regional macro concerns have clearly weighed on Patria's shares in the last few months alongside other companies with exposure to the region. While we cannot control these externalities, what can we do? We can continue to outperform. I want to emphasize the fundamental resilience of Patria's business model and the impressive investment performance we are delivering. Over three decades, we have been fundraising, deploying capital, and generating attractive and, in most cases, top-quartile returns for our LPs while navigating through many different environments. Over that time, we have faced, dealt, and learned to take advantage of the volatility in Latin America. Our returns have enabled us to raise several vintages. For example, for our two flagship funds, we are in vintage number six for private equity and vintage number four for infrastructure. And we have been able to scale these funds significantly. So let's focus on the key drivers of the investments' lifecycle: fundraising, deployments, and performance and convey why we have such high confidence in our ability to deliver value to our shareholders. In order to raise larger and larger flagship funds every four years, we had to effectively deploy the capital entrusted to us by investors. In our business, periods of volatility can present better opportunities to put money to work. And indeed, we are seeing that play out now. For private equity, in particular, you can see in our presentation that Fund VI is now 68% deployed and reserved and quickly closing in on the 75% threshold that would allow us to launch the fundraising over the next month. With our investment pipelines as strong as ever, we now see the timing of the private equity fundraising cycle accelerating, and we expect to be back in the market later this year with new investment activity transitioning to the new fund sometime in 2022. The most critical elements of our long-term success is, of course, investment performance. And we believe Patria's approach to investing in the region is really a differentiator. In private equity, we are most investing in smaller companies at attractive valuation multiples and building them into market leaders through consolidation and a relentless focus on fundamental value creation. Our two most recent private equity funds are performing phenomenally with Fund V at a 32% net IRR in U.S. dollars as it begins its harvesting phase and Fund VI at a 19% net IRR in U.S. dollars while still in its investment period. In infrastructure, we are not typically buying mature assets, but rather building new platforms or companies from the ground up to fill critical needs for society, which the government often does not have the means to address. Here we are seeing a vast range of opportunities to deploy capital into development projects, and we are in a position of strength to be a selective bidder. Across both strategies, we focus on resilient sectors of the economy that are linked to basic human needs like healthcare, food, transportation, and energy, which have lower correlations to economic cycles and GDP growth. Over time, we believe our approach has led to more consistent returns and provided stability through market cycles. In our country-specific strategies, targeting local investors, currently focused in Brazil, the question we hear recently is, with interest rates now reversing course, is the theme of financial deepening in danger? Here, I think you have to step back and appreciate the magnitude. In Brazil, for example, the interbank rate has ranged from 10% to 20% for most of the last 20 years. Since 2016, we saw a plunge from 14% to 2% and now recently reversing back to 3.5% as the Central Bank looks to tame rising inflation. If anything, a modest rise in rates should continue to stabilize local currency, which we are currently seeing. With $18 trillion of negative yielding debt across the globe, we don't see the longer-term trend of low interest rates ending anytime soon. And we don't see moderately higher rates leading to a decrease in the flow of capital into alternative assets. Indeed, we think the financial deepening in the region is well intact and will be a long-term trend that impacts Patria positively. I'll wrap up by reiterating these very simple points. Number one, our story for near-term fee-related earnings growth depends on our ability to deploy the remaining capital in our current flagship funds and go back to the market to raise new and larger funds. We have extremely high confidence in our ability to do that, and we are seeing that process accelerate. Number two, we believe the expansion of our country-specific strategies will be a steady source of organic growth for fee-related earnings as well, as these strategies achieve a more material scale over the next few years. Number three, we are actively exploring opportunities to use our IPO capital for strategic M&A, which we view as upsides to an organic growth profile that is already very compelling. Number four, and lastly and most importantly, we are cautiously aware that our growth ultimately depends on one thing: great investment performance. If we continue to deliver strong returns, LPs will commit larger sums of capital to us, and for shareholders, the investment performance can generate substantial levels of performance fees. Considering those factors, it should be no surprise that we believe Patria's stock presents an attractive valuation at current levels, and we believe our financial performance will make that clear over time. I'll now turn the call over to Michael for a deeper dive on the numbers. Michael, please.

Thank you, Alex, and good morning. Financial performance was solid for the first quarter and very much in line with our expectations, and our key business drivers are all progressing nicely. Fee-related earnings of $17.3 million in Q1'21 were up 14% from $15.2 million in Q1'20, driven by a 20% increase in total fee revenues. Management fee of $31.3 million in Q1'21 were up 31% compared to Q1'20, largely driven by fee earnings AUM inflow from Private Equity Fund VI and Infrastructure Fund IV. Personal expenses of $10.3 million were up from $7 million, mostly due to the shift in compensation structure post-IPO. FRE margin was 57% in the first quarter, reflecting very strong profitability. Patria's FRE margin is among the highest in our broader peer group and exceeds the margins of global managers many times our size on an AUM basis. Fee earnings AUM for Q1'21 rose to more than $8 billion, up 4% from the last quarter and 14% from one year ago. Keep in mind that our reported fee earnings AUM reflects the basis that it's generating management fee in the current quarter. Since our flagship funds call for management fees semi-annually at the beginning and middle of the year, the increase in fee earnings AUM from Q4 to Q1, for example, is mostly attributable to capital deployed or reserved in the second half of 2020. There is now $2.8 billion of pending fee earnings AUM, which is not yet generating management fees as of the first quarter and will drive top-line growth over the next several quarters. In our earnings presentation, we have added some additional details to show you that approximately $500 million has already been committed in the first quarter, mostly from Private Equity Fund VI, which will flow into fee earnings AUM and begin to generate management fees in the second half of '21. We are seeing attractive opportunities to invest in this environment, and our pipelines are very active. Actual capital deployments to our portfolio companies in the first quarter were $277 million, which includes amounts that were reserved in prior quarters. We noted that Private Equity Fund VI was active in reserving capital for new investments in the first quarter, taking that Fund from 51% to 68% committed, and moving us much closer to the 75% threshold for launching a new fundraising campaign. This acceleration should allow us to go back to the market later this year, sooner than expected, and begin to accrue new capital into our fee earnings AUM sometime next year. Infrastructure Fund IV remains at 56% invested and reserved. While we see that Fund taking a little longer than Private Equity to come back to the market, we are also seeing a very active pipeline for deployment with a record level of government concessions expected in the region for this year. Fundraising in the first quarter of $147 million was driven by our first Infrastructure core fund, which is recognized as part of our country-specific strategies, as it is a publicly traded evergreen vehicle focused on local investors in Brazil. This type of fund typically must allocate capital quickly and we have high visibility on the pipeline for this initial capital raise. We will have the opportunity to grow the fund through follow-on offerings once the initial capital is fully deployed. Demand for our country-specific strategies remained strong, and we expect to have opportunities to raise new capital in credit and real estate vehicles as the year progresses. Turning now to performance fees, the net accrued performance fee balance was $253 million at the end of the first quarter compared to $276 million last quarter. The decrease was driven by local currency depreciation, a trend which spanned last year and continued into the first quarter of 2021. While this movement was clearly a headwind for our USD-denominated fund performance, the modest impact to our accrual balance demonstrates impressive resilience. Also, it is important to recognize that the accrual is a snapshot in time, and with the change of direction in interest rates in April and May, we have now seen a significant stabilizing effect on local currency with the Brazilian real reversing course and appreciating against the US dollar. At current levels, all other things being equal, our March 31 net accrued performance fee would have been approximately $300 million, if you adjusted the unrealized fair value in US dollar terms accordingly. While that is, of course, a theoretical estimate, it does give you an indication of where the balance could go, if the currency remains at today's level or even improves further. We acknowledge that it's easier to be a buyer than a seller in the current environment, but we're seeing good progress toward monetizing our accrual. As Alex noted, Private Equity Fund V performance continues to be outstanding, with a net IRR of 32% and $182 million of net accrued performance fees. This is a fund with nine investments, one of which now has an exit agreement at 2.4 times invested capital. The companies are mostly mature and two have filed for an IPO. While we need more exits in the fund to realize performance fees, there are multiple opportunities across the portfolio. In Private Equity III, the net accrual of $45 million is supported by receivables from prior exits and one unrealized publicly traded investment, which we believe remains undervalued at its current share price, with significant potential to improve. In the end, realized performance fees will always be a product of the return we generate for our LPs and thus we will always sell investments when it is the right time for our LPs. So how does all these translate to our earnings outlook? What we want to convey more than anything is the outlook for fee-related earnings is completely intact, irrespective of any macro perception about the region. Remember that our capital is locked up, and we enjoy the flexibility to be patient when necessary and also aggressive when the time is appropriate. Near-term FRE growth is substantially driven by the deployment of our pending fee earnings AUM alone. If anything, today's environment is accelerating our growth path, as we deploy capital faster and bring forward fundraising. We continue to expect nominal growth in FRE for '21 compared to $71 million generated in 2020, at margin in the mid-50% range. This should be driven by very strong fee revenue growth north of 20% year-over-year. While exit transactions may be incrementally more difficult at the moment, we continue to feel great about the quality and the performance of our portfolio. We are still in the first half of the year and see significant opportunity for the backdrop to improve, especially if the economic reflation accelerates in the coming months. While that trajectory may have an impact on the level of performance fee realized this year versus next, our ultimate performance expectations are unchanged. Altogether, you should take away the message that Patria's growth story is highly intact, and exciting opportunities lie ahead. As a newly public company, we recognize that the market is carefully evaluating our ability to execute. We have high conviction that we can deliver, and presuming we do, we see considerable value in our shares at today's price. Many thanks to all of our shareholders for your support and to potential shareholders, we hope you will also consider joining us as partners on this journey. We're now happy to take your questions.

Our first question comes from Craig Siegenthaler with Credit Suisse. Your line is open.

Good morning, Alexandre, Marco. Hope you're both doing well. I wanted to come back to Slide 11. We can see that 41% of private equity Fund VI is now reserved for future transactions. And my question is, is all of the binding and reserve capital in the 41% based on transactions that have already been announced? And what are the major investments embedded in this 41%, and should we expect them to close over the next six months?

Yes, hi Craig, this is Alex. Thank you for your question. Regarding the 41%, we have already committed and deployed two-thirds of that. At the beginning of the Fund, we took advantage of the COVID situation when stock prices were low and invested in shares of two listed companies: a gas distribution network and a healthcare chain. These investments are fully committed and deployed. Additionally, we committed capital to a healthcare initiative in Latin America, starting with an integrated healthcare company in Colombia that focuses on healthcare management organizations. We invested a significant amount, deploying part of that capital. In the second quarter, we also committed to other initiatives in fast-moving consumer goods distribution and cybersecurity. We are increasing our commitments, and by the third quarter, we expect to exceed the 75% threshold, allowing us to market and have a first close for our next fund, private equity Fund VII. We anticipate having about 40% of the fund deployed, which will increase to around 50% to 60% by the end of the year. I hope that answers your question.

Great. Alex, it sounds very clear. Just for my follow-up, the interest rate backdrop is constantly changing in Brazil, and it's now looking like rates are going to move higher maybe faster than we thought three, six months ago. I know most of your clients are outside of Brazil, but how does this evolving interest rate backdrop change the domestic migration to equities and alternative thesis, which could impact flows in products like your infrastructure core fund inside of Brazil?

Thank you for the question. It’s a very good one. First, we need to consider the overall situation. Honestly, a 2% interest rate in Brazil was too low. There has been inflation in the country, especially during the months affected by COVID, but now the economy is rebounding. We are experiencing some inflation, which is beneficial for the economy, and central banks, including Brazil's, are raising interest rates to manage it. Currently, if we look at inflation in Brazil, excluding the influence of rising commodity prices, it has been relatively stable, and we have an inflation targeting system with a midpoint of 4%. Thus, excluding commodity prices, inflation is under control. Central banks across Latin America are recognizing that commodity prices are inflating overall numbers, but other components of the indices remain steady. Despite the increase compared to last year's situation with no inflation due to the crisis, we view the rise in interest rates as a positive development given the current context. In Brazil, we expect rates to rise to 5% or 6% by the end of the year, up from 3.5% now. This shift will also facilitate the passing of inflation-related costs through to prices. On the investment front, we focus on resilient sectors, such as healthcare and agribusiness, which have benefited from the rise in commodity prices. In infrastructure, most of our revenues are fixed and adjusted for inflation, so some inflation is favorable for us. Our infrastructure core fund aims for returns above inflation, typically around 6%. This means that if inflation is around 4%, nominal returns could reach about 10%. The Brazilian Central Bank generally positions interest rates about 2% above the inflation target. Therefore, if inflation is predicted at 3.5% or 4%, interest rates would be expected around 5.5% to 6%. This situation is ultimately very positive and provides support to the economy, signaling a recovery where businesses can pass on some inflation from increasing commodity costs. Overall, having around 4% inflation and 6% interest rates creates a sense of normalcy and stability. Our investments in Brazil, denominated in local currency, are designed to provide returns above inflation. Additionally, our real estate investment trusts, like infrastructure trusts, also adjust yields based on inflation, reflecting the same inflation-plus strategy. In summary, the current inflation and interest rate scenario is favorable for our businesses and the broader economy. Thank you.

Thank you, Alex.

Our next question comes from Mike Carrier with Bank of America. Your line is open.

Hey guys, this is Dean Stephan on for Mike. I know it's always difficult to forecast, but can you provide some additional color around the performance fee outlook for the remainder of 2021, if you expect any performance fees to be generated over the next couple of quarters and maybe what percent of previously expected performance fees could be delayed into next year?

Thank you, Dean, for joining our call. This is Alex. Our performance fees for 2021 primarily come from two funds: Private Equity Fund III and Private Equity Fund V. In Private Equity Fund III, the major asset making up 90% of the remaining net asset value is Alliar, an imaging diagnostics company listed on the Brazilian Stock Exchange B3. Alliar had an excellent first quarter in 2021, with stock prices increasing by 25% from the end of 2020, which pleased investors. The company was negatively impacted by COVID, as elective surgeries were put on hold, but we’re seeing a recovery now, with promising results and rising stock prices. We anticipate strong performance for Alliar going forward as vaccination efforts in the region continue, with over 110 million people vaccinated in a population of around 500 million. The ongoing vaccination rollout is expected to lead to a favorable second and third quarter for the company. Additionally, rising interest rates in Brazil and other Latin American countries are stabilizing and even strengthening regional currencies as investors return to seek yields in local fixed income. There has also been a significant increase in commodity prices, benefiting economies that rely on commodities like copper in Chile and oil in Colombia. On a micro level, Alliar’s share price has rebounded, and we are considering a divestment later this year, waiting for further recovery in the stock. Even if we decide to sell the stock now, it wouldn't significantly impact the overall performance fees for Private Equity Fund III, as we would see a full catch-up on the fund. For Private Equity Fund V, the returns are just starting, currently at a net IRR of 32% in US dollars as of Q1 this year. Out of nine companies, seven are poised for exits, with two companies having filed for IPOs, one being an integrated healthcare company and the other a network of gyms. We are optimistic about the upcoming quarters for both fund performance and potential IPOs, which could also include secondary trades for Fund V. I remain confident about generating performance fees for both Private Equity Fund III and Fund V, despite the potential for volatility. However, the recent second wave of COVID hasn't been severe, and vaccination efforts are progressing. Consequently, I anticipate we can achieve our fee targets this year. Additionally, I want to highlight our positive outlook on FRE, supported by increased capital deployment in our flagship funds, as well as disciplined expense control. We've experienced revenue growth and exceeded expectations regarding FRE margins, posting a 57% margin in Q1. Looking ahead to 2022, observations about strong performance from Private Equity Fund V and Fund VI, which has an 18% net IRR, have prompted us to consider starting the fundraising for Private Equity Fund VII earlier than initially projected, targeting late this year to early next year, which would also generate fees for us in 2022 that we hadn't anticipated. Overall, there’s a lot of positive news regarding our performance fees. Thank you for your question, and I hope my response was helpful.

Yes, that was very helpful, thanks. And I guess just as a follow-up, given one of your peers announced a share buyback program yesterday, and your comments on the call today about the current stock valuation. Just wondering if we could get your thoughts around capital priorities. If you guys have thought about share repurchases and how you're kind of balancing capital return versus M&A and investment in the business? Thanks.

Yes, that's a great question. As we look at our current share price around $15, it's certainly disappointing, representing about a 50% decline from the IPO price. We had hoped for a different outcome. However, I believe it's too soon to consider a share buyback program at this moment. There are numerous attractive opportunities in M&A along with the positive developments I mentioned regarding FRE and performance fee earnings, which are generating solid distributable earnings. This year's FRE is exceeding our expectations, and our margins are also better than anticipated in the mid-50s. We are now focusing on deploying some of the capital we raised into these new ventures, creating strong momentum for Patria Group. This should positively impact our stock as we continue to perform well. I believe the organic growth I mentioned will reflect in the stock price soon. For now, I prefer to retain the capital from our primary issuance for acquisitions, as we are exploring many exciting opportunities. I remain very aware of the share price since we own 60% of the company. Any increase in that price is highly beneficial for us. While we are optimistic about our current momentum and opportunities in M&A, I think it is premature to make any decisions regarding share buybacks at this point. We will keep a close watch on the situation and may revisit this topic in the future, but for now, that’s where we stand. Thank you.

Got it, that was very helpful. Thanks, again.

Our next question comes from Tito Labarta with Goldman Sachs. Your line is open.

Hi, good morning, thanks for the call and taking my questions. Maybe a couple of questions or so. Just first on the accrued performance fees, how much of the decline was related to simply to the FX and with the FX sort of coming back since then, should those good performance, you kind of just go back to where you were at year-end, just to get some color on the FX volatility and the impacts. And then my second question, I guess just given the underperformance in the stock and has anything changed from your expectations since the IPO. And my sense from what you've been saying I'll call so far as maybe FRE ahead of expectations with possible upside, maybe the performance fees, a little bit of uncertainty there, but just want to confirm that's that consistent with how you're seeing if anything may have changed since the IPO given the volatility in the market and in your stock. Thank you.

Hi Tito, this is Marco. Good morning. Regarding your first question about net accrued performance fees, as I mentioned earlier, a hypothetical figure excluding FX would be around 300, but that's just a projection. So, the straightforward answer is approximately $50 million. When you analyze it quarter-over-quarter, you'll find the details on a fund-by-fund basis. The number being essentially NAD reflects how much the NAV increased in relation to the currency depreciation, which is about 10% for the quarter. Concerning your second question, all the fundamentals and key drivers of the business remain very strong. In fact, we have been able to deploy capital more quickly, leading to an expectation that our fundraising for the flagship funds will speed up. Additionally, the underlying portfolio performance has been very robust, partly due to our exposure to sectors like agribusiness and logistics that have thrived during the pandemic, benefiting from government support. This gives us a promising outlook for performance fees. On the fee-related earnings side, we anticipate an increasing amount of fee-paying AUM. As I mentioned in my presentation, during the first quarter, we reserved about $500 million, but this will really contribute to our fee-earning AUM only in the latter half of the year because of how we account for it. That is encouraging news, and when you consider that last year we deployed $1.5 billion, it highlights how much more capital we are deploying this year, which will generate revenue in the second half. I hope that answers your question.

Yes, maybe I can get the second part of the question here on the general macro view that you mentioned, I think, yes, for the first part, I think of your question, I think we are optimistic on the FRE front versus our expectations. Yes, from all the reasons that I think we covered here for the deployments and etc., and very disciplined control in expenses etc. And on the performance fee side, now I think all of the data points as of today are there. That's a major performance fee coming from our Private Equity Fund III, where the most important asset there is an imaging diagnostics company that the stock traded 25% up, and we also see the real strengthening. Now, as of today, be it BRL520, BRL530 versus BRL550, BRL560; so as of now, May 20, I think now things are progressing in the right direction in order to realize that performance fee from Fund III and a good share of reais per share, and on Fund V, the companies are performing extremely well, and of course, it's also very important to say that the sector selection which is key in our view, in my view to do well in equities in the region in Latin America. In Fund V, it's amazing, we see not only the companies are doing well, but it starts with the sector selection, healthcare, agribusiness, logistics, all of these sectors were extremely benefited from COVID, on the contrary, what are all negatively affected, they were positively affected. Now the HMO business that we have, which is a major asset in Fund V was positively affected because now we continue to receive the payments for our private payers. Now we just serve the private side of the market, we don't serve the government for this company. So everybody was paying, but there were no elective surgeries. So now the margins of the business and EBITDA of the business were extremely benefited last year and continue to be this year. We have a major agribusiness company in this Fund V, which now is a distributor of agribusiness products. We buy from Dow and whatever, and we sell to farmers. Now, what happened with the commodity prices, agribusiness prices in Brazil, farmers think they never saw the kind of margin that they're seeing in their business today. Now, soybean mushrooms in reais is three times the price they were three years ago besides productivity gains. Our business, of course, benefits from that. So the businesses that composed Fund V are doing extremely well. So, at the right time here, we are going to be able to sell them at very good prices. And also, the strengthening of the real. So I think we position ourselves in a good place to be, and as of May 20, things are working our way. Of course, when I look at the FRE, I have a lot more certainty because I know how much I'm deploying, the funds already raised, and with the kind of performance we have and see support from our LPs for us to raise our Private Equity Fund VII and on the performance fee side, there is also more uncertainties on when you're going to sell it and whatever, but, so, as of today things are good for the year. So, I hope I answered your question as well.

Yes. It's very helpful, Alex and Marco. Thank you very much.

Our next question comes from Robert Lee with KBW. Your line is open.

Good morning. Thank you very much. Thanks for taking my questions. A lot of them have been asked and answered, but one or two that I had is, I'm just curious, this relates to realizations, but clearly there is a growing secondary market appetite participation and I know in the past you had kind of discussed that there been some parties that maybe you're interested in some type of strip transaction that may could have potential, I guess, accelerating some realizations. I mean, can you maybe update us if those kind of discussions are ongoing or this maybe just not the right time to consider something like that? Just curious where that stands?

Hi Robert, this is Alex. Thanks for your question. I believe it's the right time to carefully evaluate the situation. The secondary market is currently very liquid, with significant funds raised by several key players. We have valuable assets, particularly in Private Equity Fund V, and it is definitely something we will consider. We've been approached by several of these players who are looking at the positive developments in the region, including the rebound and the strengthening of currencies due to rising commodity prices, which positively impacts regional economies. They also recognize that the companies in our Private Equity Fund V are well positioned in sectors like healthcare, agribusiness, and logistics. Additionally, our last-mile food logistics business in Fund V has performed exceptionally well, especially as more people are staying home and ordering food. We've been approached, and we are actively considering these opportunities, particularly GP-led transactions, which have been increasing over the years. Last quarter, if I recall correctly, there were more GP-led transactions than LP-led transactions in the secondary market. Therefore, we are indeed contemplating our options, and Fund V is a strong candidate given all these factors. Thank you.

Actually, that was my only question. Thanks for taking the time.

In our follow-up, we just wanted to circle back on corporate M&A. Can you remind us your appetite to acquire private markets businesses outside of Brazil and adjacent markets, and I'm thinking like Chile, Colombia, Mexico?

Thank you, Craig. There is strong interest in expanding our presence in adjacent economies, which offer intriguing opportunities. We aim to diversify our exposure beyond Brazil by enhancing our product offerings. This includes targeting Brazilian investors with specific products like REITs and infrastructure trusts, while also collaborating with general partners managing similar products in the mentioned countries. There are outstanding managers in the region performing well, which would greatly benefit our portfolio by reducing country and currency risk. Investments in these economies show low correlation with the US and European economies, providing our limited partners with desirable returns and higher Sharpe ratios. By including countries like Chile and Colombia, we enhance regional exposure, mitigating risks associated with individual countries. Additionally, the currencies in these countries tend to be more stable than the Brazilian real. Many industries in the region are at earlier stages of development, presenting opportunities for attractive valuations through local managers. Our Private Equity Fund V aims for a mix of 60-65% investment in Brazil and 35-40% in other South American nations, aligning with the region's GDP distribution. This strategy allows us to capture better returns through favorable valuations while responding to our limited partners' increased interest in regional exposure over single-country investments. Thank you.

Thank you for that.

There are no further questions. I'd like to turn the call back over to Josh Wood for any closing remarks.

Thank you, everyone, for joining us today. If you have further questions, please reach out to us at the contact information provided in our earnings presentation and on our website. We look forward to talking with you again soon, and have a great day. Thanks.

Thank you, everybody. Stay safe, and thank you very much.

Ladies and gentlemen, this does conclude the program. You may now disconnect.