Patria Investments Ltd Q4 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Patria Fourth Quarter and Full-Year 2021 Earnings Conference 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 will 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 Fourth Quarter 2021 Earnings Call. Joining 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 results for the fourth quarter and the full year, 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 latest form 20F annual report, with our 2021 filing to be completed in the coming weeks. Also note that no statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any Patria fund. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards or IFRS as opposed to U.S. GAAP. Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable measures calculated in accordance with IFRS are included in our earnings presentation. As a quick overview of the results, Patria generated fee-related earnings of $29.3 million in 4Q '21 and $86 million for the full year, including performance-related earnings of $58 million. Earnings for the full year 2021 were $141.3 million or $1.02 per share in line with our guidance, distributable earnings for the fourth quarter were $27.7 million or $18.8 per share, and we declared a dividend of $0.16 per share payable on March 16 to shareholders of record as of March 2, bringing our full year 2021 dividends to $86.9 per share. Note that Patria's combination with Moneda Asset Management closed on December 1, 2021, and our P&L reflects the proportional impact from Moneda only for the month of December. Marco will provide more detail on this in his commentary. Our reporting for total AUM and fee earning AUM reflects the year-end levels for Moneda. And we have enhanced our reporting on these metrics to provide a breakout along asset class lines. With that, I'll now turn the call over to our Chief Executive Officer, Alex Saigh.

Thank you, Josh. Good morning, everyone. We hope that you are all well and safe and it's great to be here with you again today. Just a few weeks ago, Patria celebrated the one-year anniversary of our IPO on Nasdaq, and it has been an incredible year of growth for our firm. Our investment platform is significantly larger and more diverse than it was a year ago. Our earnings have grown impressively, which of course accrues to our shareholders. And we have also grown in maturity as a firm, adding new talent in key areas and making significant advances in our corporate governance, as we navigate this journey as a public company. I'm honored with the privilege of leading such a dedicated group of people and excited for what we can accomplish moving forward. Just to put a finer point on what we have accomplished in this first year. Our 2021 fee revenue grew by 27% year-over-year, driven by a record pace of deployments with more than $2.5 billion deployed from our drawdown funds. We delivered $86 million of fee-related earnings in 2021, which represents year-over-year growth of more than 50% on a comparative basis. With continued value creation across the portfolio, our net accrued performance fees increased by $348 million, up 26% from one year ago even after realizing $58 million of performance fees during the year. As we guided you last quarter, we delivered just over $1 per share of distributable earnings, of which 85% is distributed to our shareholders. This equates to a yield of 5% on our IPO price, which we believe is among the best yields in our sector for 2021. And it's four times the dividend yield on the S&P 500. Finally, with platform expansion as a major goal, we completed our first M&A transaction with Moneda Asset Management, which brings us a leading regional credit platform and adds critical expertise in pan-Latin American and Chilean equities. We also recently announced an agreement to partner with Kamaroopin (KMP) in the launch of our growth equity strategy. Listening to our commentary over the course of the year, you have heard us talk a lot about the inherent resiliency of the business model and how it allows us to thrive in times of volatility, especially investing in a region like Latin America. These results and metrics for 2021 are a perfect representation of that. The ability to grow our revenue and earnings at a high rate over the last year underscores an important point, which is true for our entire sector. Asset managers with long-term capital can do some of their best work in times of market dislocation. We believe these are good times to deploy capital and for Patria, deployment translates directly to management fee-related earnings growth. If the environment is flipped to the other end of the spectrum and it's a better time to sell than to buy, you may see the appointment pace slow, but portfolio realizations will then also likely rise, generating more realizations for our LPs and higher realized performance fees for our shareholders. That structural balance in our revenue streams allows us to create value for our shareholders through the peaks and troughs of economic cycles and everywhere in between. Despite the headlines and equity market volatility worldwide, the major economies in Latin America held up well in 2021 as well as in early 2022. Higher asset prices reflected recovering from the pandemic together with constructive fiscal and monetary developments. On the health front, vaccination rates in the region now surpassed much of the world. While in the fiscal area, there was a sharp reduction of budget imbalances in key economies like Brazil. Inflation trended higher in Latin America sooner than other regions, forcing central banks into a head start on the fight by raising benchmark interest rates in the first half of last year. And now it seems we may be cresting the cycle as other regions and economies are only beginning the tightening process. We have seen local currencies appreciate in recent weeks and it is possible we are moving towards a more benign scenario that will provide momentum to ramp up our divestment activity. Looking across the platform, our flagship private equity strategy made strides in all phases of the investment cycle in 2021. We deployed more than $1.6 billion driving management fee growth and positioning ourselves to raise our next vintage fund well ahead of schedule. We indicated last quarter there was room for one additional allocation out of our Private Equity Fund VI, and indeed we've committed nearly $400 million in the fourth quarter into our agribusiness, cybersecurity, and grocery retail thesis. In a year that was particularly difficult for divestments, we also successfully sold our stake in Alliar, allowing us to realize $58 million in performance fees from Private Equity Fund III. Our overall private equity portfolio continues to perform very well with underlying investments appreciating more than $1 billion and ending the year with a combined $266 million of net accrued performance fees. In infrastructure, our team continued to capitalize on the vast opportunity sets in the region, deploying more than $750 million in 2021 from Infrastructure Fund IV. About $300 million of that came in the fourth quarter, driven by our success in Brazil's 5G spectrum auction, where our telecom platform, Winity, won concessions to build more than 5,000 towers and distribute mobile coverage to operators through an innovative wholesale model. The strategy also saw meaningful expansion last year in control roles and data centers, areas where we can see attractive dynamics and opportunities. The performance fee potential of the infrastructure platform is also emerging with net accrued performance fees up to $81 million at year end, more than three times the accrual from one year ago. With the Moneda combination complete, credit becomes the third major strategy vertical in our platform with $5 billion of AUM. Already here in the New Year, we are hard at work introducing Moneda's products to our global investor base, and we are excited about the potential for this asset class in the region. Moneda's largest product is Latin high-yield credit, which is both denominated in U.S. dollars and also invests in U.S. dollar-denominated fixed income. The primary funds in this strategy returned 10.5% in 2021, outperforming its benchmark by more than 800 basis points and underscoring how these credit strategies can thrive in a rising rate environment. Over the 21 years since inception, the fund has outperformed its benchmark by nearly 400 basis points, a long and impressive track record for attracting global capital. To solidify Patria as the leading diversified asset manager in Latin America, our aim is to build a platform that global investors will view as a comprehensive package for allocated capital to the region. Likewise, we want to acquire or develop products to attract more local capital and leverage the long-term financial deepening playing out in our own backyard. Moneda advances that goal not only through a world-class credit platform but also with deep expertise in public equities and greater geographic reach and distribution capabilities in the region. With our pending acquisition of Kamaroopin, we are also laying a foundation for a growth equity vertical that will be highly complementary to our flagship private equity strategy. These are great strides in our first year post-IPO, but in my view, we're just getting started. Now let me close with just a few words on our goals in the year ahead. We told you that we expect fee-related earnings to increase by more than 50% from the $86 million we delivered in 2021. We are set up very well to meet these targets, and leadership across the firm is aligned and focused on delivering their budgets. Fundraising is a top priority as we enter another major cycle. We are in the process of raising our next vintage flagship private equity fund, with the initial closing taking place here in the first quarter. We're also raising our first dedicated renewable energy fund with our next flagship infrastructure fund soon to follow. Our sales team is on the road and highly engaged with our LPs across the globe to drive much higher influence than we saw in 2021, which was more of an off-cycle year. Investment performance is everything in our industry and never out-of-focus. Our portfolio teams are executing on our business plans to deliver a continuous stream of value creation to sustain our track record. This year, we aim to move earlier vintage funds, like Private Equity Fund V, which is currently generating a 27% net IRR in U.S. dollars further into a harvesting phase and into a position to monetize the performance fee accruals. We will continue to pursue strategic M&A opportunities to further expand and diversify our platform. We see interesting opportunities from both an asset class and geographical perspective. And we will be diligent but persistent with our efforts. This year, I want to again thank our entire team for delivering great results in 2021 as well as our limited partners and of course our shareholders for your confidence in Patria as a steward over your capital. Our business is built on performance and trust, and we know that we must deliver one to earn the other. I'll now turn the call over to Marco.

Thank you, Alex, and good morning, everyone. Patria's results for 2021 demonstrate our attractive earnings growth trajectory. And we move into 2022 with strong momentum looking forward. Fee-related earnings for the full year 2021 were $86 million, comfortably exceeding our guidance of more than $75 million. And we generated a margin of 59% for the full year. Fee-related earnings are up 21% from 2020 as reported, or up 52% when adjusting the prior year for a comparable compensation structure, a more apples-to-apples comparison. For the fourth quarter, we generated $29.3 million of fee-related earnings, at a 63% margin compared to $20.2 million in 4Q '20. We announced the closing of our combination with Moneda on December 01, 2021, and Moneda contributed $6.5 million to our fee-related earnings in the final month of the year. Adding the $58 million of performance-related earnings from earlier in the year, we generated $141.3 million of distributable earnings, more than 150% on a comparable basis from 2020, equivalent to $1.02 per share. Distributable earnings for 4Q '21 were $27.7 million or nearly $0.19 per share, which results in a dividend of $0.16 per share for the quarter. This brings our total 2021 dividend to nearly $0.87 per share, which is 85% of distributable earnings per share per our policy and results in more than $120 million of earnings distributed to shareholders in our first year post-IPO. The top line is driving our earnings growth, with fee revenues up 27% in 2021 compared to the prior year. Our fourth quarter '21 management fees were $42.1 million, up 42% compared to fourth quarter '20, which further demonstrates the baseline momentum we carry into 2022. Moneda added $9.1 million of overall fee revenue in December, including the incentive fee of $4.9 million. Personnel expenses for the full-year 2021 were $43.7 million, with $1.2 million of that attributable to Moneda in December. That compares to $26.8 million as reported for 2020, but adjusting for comparable compensation structure and excluding the Moneda fees, our organic compensation grew at a rate of about 3% year-over-year. There is some effect from local currency devaluation there and we would expect personnel expenses on an organic basis to grow at a higher rate closer to 10% in 2022 plus the addition of Moneda. Administrative expenses for full-year 2021 were $14.1 million with $1.1 million related to Moneda. Excluding the Moneda portion, admin expenses were down 11% from 2020, much of which can be attributed to lower travel-related costs in the pandemic environment, and also the impact of local currency depreciation. We would expect admin expenses to rise as more normalized travel agendas resume, which all things considered, we hope happens in 2022. Net accrued performance fees ended the year at $348 million, up 11% from last quarter, driven mostly by appreciation in the Infrastructure Fund III, a 2014 vintage fund, which now has net accrual of $75 million as it moves further into carry. The balance is up 26% compared to one year ago and accounting for the $58 million, we realized from Private Equity Fund III during the year, the overall net accrual grew by 47% during 2021. Our latest fund continued to perform very well led by Private Equity Fund V, with a net IRR of 27% as it moves into the harvesting phase. While they are earlier in the lifecycle, Private Equity Fund VI and Infrastructure Fund IV are generating 21% and 34% IRRs respectively. We feel great about the position of our portfolio and ability to generate larger amounts of realized performance fees as these funds continue to mature. Turning to AUM, total AUM of $23.8 billion at the end is up 65% from the end of 2020, including the addition of the Moneda platform. You'll see in our presentation that we have enhanced our breakdown of AUM by asset class. In our AUM bridge schedules for the quarter and the full year, note that Moneda's platform is recognized on a separate acquisitions line for the initial inflow. From year 2021 onwards, Moneda activity will be reflected in the normal bridge line items. Given we are raising our next flagship Private Equity Fund during 2022, you can expect more fundraising-related growth in total AUM compared to 2021, as the dry powder will be recognized when capital is committed in each individual closing. Fee earnings day one was $17.9 billion as of year-end 2021, up 132%, including the addition of Moneda and up 20% on an organic basis reflecting the similar growth rate in our revenues for the year. As Alex noted, our record deployment phase in 2021 was the driver of fee earnings AUM, and revenue growth. We deployed an additional $733 million in the fourth quarter. Nearly $400 million of that amount was in private equity, where fees are based purely on deployment, and that amount will flow into fee earnings AUM and begin to earn management fees here in the first half of 2022. Another $300 million of debt fourth quarter deployment was from our fourth infrastructure fund, where the fee structure is a split with half charged on commitments and half on deployment. In this case, this amount was already included in the fee earnings AUM, but we will still drive incremental management fees in the first half of 2022, due to the portion charged on deployment. Given the increasing diversification of the platform, we're also adding some additional information on fee earnings AUM by asset class in our presentation. The goal is to provide color on the structures and key drivers for each bucket and allow you to more easily frame each piece on our forward-looking basis. Our 2022 fee-related earnings guidance is unchanged. We expect FRE to increase by more than 50% from our 2021 results with an FRE margin in the low 50% range. As we think about that progression by quarter, remember a few important points. First, our flagship Private Equity and Infrastructure Funds charge management fees twice a year based on the updated fee basis. You can expect to see the incremental P&L impact of ongoing deployment and divestments in the first quarter based on activity in the prior six months and then again in the third quarter, which you can relate to my comments on recent deployment just a moment ago. And second, incentive fees generated by Moneda's products are included in the fee-related earnings as they are measured and charged on a periodic basis and do not require divestment events to be realized. These incentive fees generally crystallize at the year-end as a fourth quarter event. Our baseline assumptions for the guidance assume that about 10% of the overall fee revenue from Moneda products will be in the form of these incentive fees, so that is important to know as you think about timing. Note that incentive fees are not included in our disclosures on the factored management fee rates in the presentation. I will close by reiterating Alex's messages that we are very pleased with our 2021 results and proud of the Patria team for their diligent work across all aspects of the business. One year forward from the IPO, we have already used the capital to expand our platform, and the table is set for us to deliver powerful growth again in 2022. We greatly appreciate the support from all of our shareholders, and we look forward to talking with you again soon. We're now ready to take your questions. Thank you.

Please stand by while we compile the Q&A roster. Our first question comes from the line of Robert Lee from KBW. Your line is now open. Pardon me, Robert Lee from KBW. Your line is now open. Please check your mute button.

Sorry. Sorry about that. Thanks so much for taking my questions. I appreciate it. Wondered maybe focus initially on fundraising. So we talked about having a first close, I guess, in the first quarter and the next PE Fund. But I guess my first question is, you've talked previously about 50% upsizing on the PE fund and hopefully when you start on the infrastructure fund. Any reason to think that's not kind of where you're headed? And I'm also curious about your LP mix. Any kind of color on what you're seeing so far on re-ups from existing clients versus how much of the fund you think could come from new investors with Patria.

Hi, Rob. This is Alex here. Thanks for your question and hope you are well and safe. I think everything that you said is in line with our expectations. I have to be a little careful here because as we are fundraising for our next flagship Private Equity Fund, I was invited to give a lot of details because we are in fundraising and we have already filed our prospectus. But everything that you've said is basically in line with what we expect. Josh, should we give any more color here or are we fine here?

I think that's good Alex. I mean, that's everything is in line with what we said, relative to prior expectations, Rob. And as you said, we're having first closings here in the first quarter, I would just add that with our first quarter earnings report, which will be in May, you'll be able to see the amount that was raised as of the end of the first quarter.

I'm sorry, I didn't mean to cut you off.

Sorry. Last comment on the client profile that you ask. Again, I think pretty much in line with prior funds, where we have around 70% to 80% coming from re-ups and 20% to 30% coming from new clients. As in the past, I see that this time around, we're going to be able to see the same kind of breakdown that I just described. That was the second part of your question.

Yes, it was, thank you so much. And maybe just as a quick follow-up, and you're sticking with the fundraising theme. Could you update us possibly on your thoughts around fundraising around listed permanent capital vehicles, how do you feel about it, at least maybe over the first half of the year?

Yeah, I think this is a strategy that we are pursuing aggressively. As you know, we're thinking of pursuing permanent capital vehicles in general for the four asset classes here that we do manage: private equity, infrastructure, credit, and real estate. I think we can do it basically both ways, through listings in the local stock exchanges and, for example, in the case of real estate, we do have to list the funds in the Brazilian Stock Exchange, B3. We also can do it through the listing of infrastructure investment trust, as we have one also listed in the Brazilian Stock Exchange, and we are also looking to list some of these vehicles on international stock exchanges, including Nasdaq and the London Stock Exchange. As you probably know, we have already talked to you guys about this. So yes, I think it's a very interesting structure fund. And we are pursuing, we already have funds listed down there in Brazil, and we are also looking to acquire these permanent capital structured funds through acquisition, through M&A. If we do pursue M&A opportunities in the real estate arena, there are several permanent capital structured funds in the region that were listed on the main stock exchanges in Mexico, Colombia, Chile, and Brazil. So we can also add these kinds of funds, not only organically but also through M&A.

Great, that's very helpful. Thanks for taking my questions.

Thank you.

Thank you. Our next question comes from the line of Craig Siegenthaler from Bank of America. Your line is now open.

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

Good morning, Craig. We're all well, thank you.

Yeah. Nice to talk to you. Hope you are well and safe as well.

Nice to talk to you guys too. On the macroeconomic front, we're actually seeing a divergence here, where the U.S. economy inflation has been deteriorating over the last few months, while in Brazil has started to rebound. So I know this is just a few months, but can you remind us how your business will be impacted if these trends continue? I'm especially thinking that a lot of your LPs are in the U.S. and Western Europe, and they might be possibly positioned for the rebound in Brazil here.

Oh, Craig, thanks for the question. We do have also Luis Fernando, our head economist with us today, so he can help me answer this question. But in summary, straight to the point, now diversification space. I think our investors are really sure about that and you can see exactly what you're saying. Last year, we had some economies in the developed world performing very well, while some economies on the developing side were suffering here or there, but I think more from negative headline news than actual data. When you cut into the data, you can see that these economies have actually done their homework. They were responsible on the fiscal side. If you look at the main economy in the region, which is Brazil, what a year on the fiscal side! We had, for the first time in the last 15 years, a surplus on the federal and state level, and we reduced our gross debt to GDP to 80%, and several economists are predicting that we're going to hit 100% gross debt to GDP in Brazil. In Chile, the economy grew 12% last year and is now predicted to grow around 4% this year. Again, for projections, it was expected that Chile would grow a lot less than the 12% last year. So, with fiscally responsible governments, central banks have been raising rates before the main economies on the developed side of the world. I think we are heading toward a more controlled inflationary environment, and you can see that looking at the yield curve. The yield curve is starting to actually show a negative trend, and we might exit this earlier, with economies potentially growing healthily again. With that, I think it's important to note that, sorry, I forgot to mention, the depreciation of the currency has also played a role. Everything I'm saying indicates that this is a great moment to invest in the region. We saw record foreign direct investment in Chile last year and a very healthy investment in Brazil. The carry trade looks good for the currencies now; you can borrow money at zero interest rates all over the world and invest in Brazil with rates going over 10%. So it's a good carry trade. That actually stabilizes the currencies in the region or even makes them appreciate, as you can notice in the recent weeks and months. It's a very benign environment for us for investors to invest, and a very good environment for us to divest. What I mentioned during our call is that if this scenario persists, I think it's a great scenario for us to divest and reach our goals and performance fees, etc. But more healthily, just divest and rotate the portfolio. So, with all due caution, I am pretty optimistic about the region due to the groundwork that has been laid out by the different governments. Luis Fernando, if you want to complement my answer here, please feel free to do so.

Of course, Alex. Hi, Craig, Luis Fernando here. Just a couple of ideas that are not very intuitive, but they're important to understand the investment environment. The business cycle in Latin America, with the exception of Mexico, is not highly correlated to the U.S. or Europe; it's a business cycle on its own, so correlations are pretty low. So what you're seeing here, as I'd like to explain, is that the region started to recover from COVID faster than people expected outside Latin America, because the vaccination program has been a remarkable success and people in Latin America are eager to get vaccinated. The economies are beginning to reopen quickly, and that's allowed the central banks to start moving and not be behind the curve. Central banks started to tighten monetary policy in Latin America back in March of last year, nearly a year ago. Now we have some countries with double-digit rates like Brazil, while other countries are raising interest rates significantly per meeting of their monetary policy committee. That's the flip side of having higher commodity prices, and global inflation plays also in favor of Latin America because Latin America exports most oil and some grains and minerals, which are putting pressure on inflation. Lastly, we have this environment where the currencies are appreciating right now, as they were remarkably undervalued. That point has been made several times. Now, they are moving towards being fairly valued and are becoming less depreciated than they were one or two years ago. It’s a very benign environment; however, you must be prepared to take advantage of it. When the cycle was not looking good and people were still a little bit scared in Latin America, that's what we focused on over the past couple of years. Now, perhaps we are entering a different environment where we might consider some realizations because asset prices are going up. Why not accelerate the fundraising?

All right, guys, that was very comprehensive. I have one follow-up on M&A just after the Moneda acquisition and the growth capital partnership. But how would you rank or list the product gaps, and also under-penetrated geographies that you're most attracted to? I heard your earlier comments in Q&A, and it sounds like real estate is probably at the top of the list. And then in terms of geographies, Brazil, Mexico, and Colombia on the geography side.

Yes, Craig. This is Alex again. I think you're right. If you look at our breakdown of our AUM, I think it would be beneficial to beef up real estate and diversify our product offering. I think it is a good moment to take advantage as asset prices and prices for general partners in this field have actually gone down because interest rates have risen. We previously shied away from looking at these assets and general partners that manage real estate funds last year when interest rates were lower, making these assets more expensive. I think we benefit from looking into this asset class more closely. In addition, this is an asset class that would be very good for us to add further AUM to our portfolio. Mexico is a market where we are not yet present, but I believe it has a robust economy in a macro sense. Additionally, the ongoing geopolitical issues favor onshoring to Mexico, which is beneficial as you're probably aware. I've been to Mexico several times last year, and if you fly to the north of Mexico, real estate prices are skyrocketing due to a lack of warehouse construction and limited electricity supply for factories serving the U.S. These geopolitical issues around the world seem to favor Mexico as well. It's driven by different forces, as Luis Fernando just explained, and it's a great opportunity for us to diversify our portfolio. Real estate is a priority, Mexico is a priority, and I believe we can also expand geographically into Colombia where we are already doing well in private equity and infrastructure, and I think we are recognized in the market as the number one alternative asset manager there. That's where we are looking to expand, and that's the focus of our M&A team.

Great. Thank you, Alex.

Thank you.

Thank you. Our next question comes from the line of Tito Labarta from Goldman Sachs. Your line is now open.

Hi, good morning. Alex, Marco, and Josh. Thank you for the call and for taking my questions. A couple of questions. First, on your fee-related earnings margin, good performance in the quarter. You're still guiding for low 50% FRE margin. Just help us think about that, because you are above 60% last quarter and around the 60% level. So what's going to pressure the margin this year? Is that just more investments, and is there any seasonality to that? Do you expect the margin next in the second half of next year to be higher than the first half? Similar to what we saw in 2021? That's my first question. Then I'm going to ask a second question after that.

Hi Tito. This is Marco. So margins, there's really no relevant pressure on margin. The way we tie our guidance is when we add up Moneda for the last year, you only get one month of Moneda. Moneda does have a smaller margin, so when you blend it all up, we're going to land it in the low 50s, but actually we've seen the business scaling up. We are not providing any relevant guidance in terms of blended margin increase, but cost pressure has not been a significant point of concern for us.

Just one thing I would add there to your point on seasonality. We mentioned this in the remarks is that generally, the incentive fees for Moneda will crystallize in the fourth quarter, and those incentive fees are part of fee-related earnings because they are measured and realized on a regular basis without the need for the actual investment exits or realizations. And so what that can cause is a pop in the margin in the fourth quarter, which would be the big element of seasonality to think about.

And just to add one more point, if you look at our financials and you compare the admin expenses, the progression over time has not been significant, and even the personnel expenses when adjusted for the compensation from 2020, there's also not a significant increase in expenses.

Great. Thanks for that. So just one question to clarify on the Moneda. I know you'd mention that incentive fee. And if we back out trying to get in the management fees, I'm estimating around 8 to 9 million from Moneda. I guess that was in one month if he had about 2 million in total expenses coming from Moneda in the quarter or so, how much were the management fees from Moneda in 4Q?

What you get is about total net revenues for Moneda in December 9.1 million, which translates into a 6.5 of fee-related earnings, and you get around 50% of this amount being management fees and 50% incentive fees.

Okay. That's clear. And then that's how we should think about the margin for Moneda. And yeah, you'll get, as Josh mentioned, that pop in 4Q next year.

We indicated guidance of margin. Our previous call for Moneda, we actually laid down a page where Moneda was at around 40%. So there is a slight increment of scale, but you can generally think of it as 40% plus some scale.

Okay. That's great. Thank you. That's helpful. And then the other second question is on the performance fees revenue, and we saw a good increase in the performance accrual fee. How do you think about the environment from potentially realizing some of those fees in 2022?

I believe the macroeconomic situation is becoming more favorable for us to make investments. A year ago, there were several uncertainties in the region, such as concerns about fiscal responsibility, inflation, and the responsiveness of central banks as well as the implementation of vaccination programs. Our head economist pointed out that we have emerged from 2021 with the region performing better than expected as a whole. Although there was some negative news and political uncertainty, particularly in Chile due to the elections and issues with the Brazilian President's media relations, the overall data trends have been positive. The media is beginning to view these economies more favorably. The macroeconomic background is improving, leading to a solid financing environment, with interest rates in the region becoming more stable. Investing against these currencies has become more expensive compared to two years ago when rates were near zero, indicating a more attractive investment landscape. Our Private Equity Fund V is now looking to divest, as we fully divested our Private Equity Fund III in 2021 and generated good returns for our partners. We are cautiously optimistic, though it’s difficult to predict exact timing, and there is a possibility that some aspects may extend into 2023. Nonetheless, we are moving in the right direction, supported by positive trends.

As we move through the quarters, you will notice improvements in our net unrealized performance fees. We are seeing an enhancement in net accrued performance fees, with a greater focus on Private Equity Fund V, and now Infrastructure Fund III and Private Equity Fund IV are also contributing. The increased composition of these net accrued performance fees boosts our chances of realizing the performance fee, as we have not only a variety of companies in each fund but also multiple funds contributing. We remain confident that Private Equity Fund V will be the next to contribute performance fees, and there are various opportunities within it that could generate that fee. It's encouraging that the other funds are also helping increase the net accrued performance fee.

Okay. Great. Thank you very much.

I think here also, when we look at Moneda's incentive fees, that's also a big contributor for us in 2022. If you consider where the region is, and on the Moneda side, the currency aspect is important for the local equity strategies and local debt strategies. You needed around 880 Pesos to buy a dollar; today you need 800. You needed around 1,060 to buy a dollar; today you need around 520, so that actually pushes the performance fees of these local funds in the right direction as well.

Thank you. Our next question comes from the line of Marcelo Telles from Credit Suisse. Your line is now open.

Hi, good morning everyone, and congratulations on the results. Hi Alex, hi Marco. I have two questions. The first one is about your capital deployment. 2021 was an excellent year for you with over $2.5 billion deployed. How can we expect your capacity to deploy in 2022? Do you think it can maintain a similar pace? My second question is more general. Since there are elections in Brazil this year, the leading candidate seems to favor a greater government role in infrastructure and investments. Additionally, we might see an expanded role for the Brazilian National Development Bank moving forward. How do you think this increased role of the BNDS could affect your business, specifically in terms of your deployment capabilities or your ability to discover new assets in Brazil? Thank you.

On the deployment front, and again, thank you for your question. Marcelo, this is Alex here, and I hope you are well and safe as well. On your deployment question, we still have a lot of room, which I call now, what is referred to as the capsule that is to be called, which will then show up in January fees as shown by Marco in this presentation. So we have room to continue investing now for Private Equity Fund VI or Infrastructure Fund IV, along with our other strategies in real estate and credit, and of course in public equities. Regarding revenue goals for 2022, we deployed a substantial amount of capital to our standards in the second half of 21, which will only generate revenues in 2022. So these two movements, along with this last one that I'm going to describe, as we do fundraising, we will continue to invest, not just in prior funds, but we will begin investing in new funds as well. As mentioned, we are currently raising our next flagship private equity fund. And we can invest while we fundraise. In essence, if we raise $100 and aim to raise $200 for this fund, I can start investing that $100 that I already raised. So as mentioned, we expect to have a first closing of Private Equity Fund VII for example, in this quarter. From my example, the $100, I can start investing that fund; I don't have to wait to raise the whole fund, the $200 in my example, to start investing. So not only will my revenues in the first half of 2022 be positively impacted by the investments we made in the second half of 2021, but the additional dry powder to invest will further push revenues in the first half of 2022 upwards, and we will also drive revenues up in the second half of 2022 when we raise new funds. These three factors point towards a positive direction here, and that's why we referenced guidance of 50% growth in fee-related earnings compared to 2021. On the political side, we already experienced mandates from Mr. Lula. As you know, and rather than discussing the value side and whatever, I think it's a more complicated subject, the current president, Mr. Bolsonaro, and Mr. Lula, as you mentioned, have vastly different values and political ideologies, but I believe the major drivers of their economic programs are quite similar. I think Mr. Lula is saying a lot to gain popularity at this moment in the campaigns. He aims to rally his supporters and raise his poll numbers, as he successfully did when running for presidential elections in the past. We have already witnessed him running for five presidential elections. So as things progress towards the second round or even earlier, he is already moving towards the center and trying to attract more moderates within the business crowd as he searches for votes, as evidenced by his selection of Mr. Alckmin as his vice president which is a strategic move to draw in moderates and the business community. I think that even though on the ideological level we may argue to each their own, I see that on the economic side, they aim for very similar goals, it's not identical but closely aligned, economically speaking. The BNDS aspect is that I don't think there will be more leeway to perform what they did in the past with the BNDS, such as financing the champions of Brazil. As you know, many of those champions became embroiled in messy corruption scandals. It would be challenging for Mr. Lula to finance these champions again using BNDS. There will be societal and legal system pressures against that, and Mr. Lula, who is politically astute, understands that very well. So I think he sees he can use capital markets to finance deals as it happened during the last years while he was president. We've seen record privatizations and concessions, with a strong private sector that is doing excellent work in the region currently managing all these physical assets, led by the Ministry of Infrastructure. In summary, I think the economic framework is likely to remain consistent with what is happening now; the financial markets are already adjusting to that shift in mindset. I don't know if Marco, if you wish to add something here, please do so.

Yeah. I will just add to help you out with your model on capital deployment. If you take the main funds to be raised, you're looking at about $6 billion, and you just split that between three to four years of deployment, adding up to the pending fee earnings that will be recognized you'll get a number that is about $2 billion. I think the $2.5 for 2021 was a bit of an exception because it was an extraordinary year for capital deployment. So we could do that again considering the factors and timelines impacting the region. I will keep it straightforward for your model and advise to split evenly over the three to four years for those drawdown funds.

Sorry, Marcelo, just to complement on the macroeconomic perspective. Regarding your concern about being crowded out by the BNDS, I need to reemphasize Alex's points. The corporate governance in Brazil, especially for state-owned companies, has changed; the government cannot perform as they did throughout the 2000s with Petrobras, BNDS, Eletrobras, etc. That's the first point, but even if it were possible, I want to emphasize that our business model is not dependent on what the BNDS does or does not do. We have successfully built our business regardless of whether there’s a leftist or right-wing government, with plenty of opportunities for us to explore in Brazil and outside of Brazil as well. The lack of opportunities in the region, particularly Brazil, is not a concern for us.

Very good. Thank you so much for the answers. I appreciate it.

Thank you. Our next question comes from the line of Riccardo Buchpiguel from BTG Pactual. Your line is now open.

Morning everyone and congrats on the results. Could you please help us understand a little bit your January expectations on a couple of details from the new PE Fund VII? I know a lot has been said about that, but if you can comment, I want to understand and get a sense on what the fundraising schedule after the first closing, in the next quarter than you mentioned. And how much AUM is expected for the new fund, after its fully raised. Thank you.

Thank you again, and this is Alex here. Fundraising for these kinds of closed-end funds normally takes 12 to 18 months. That's the natural, historical average, not only for Patria funds but in general. What we've been seeing is a lot of interest, but we're also seeing that COVID and due diligence and meetings, as we did mention in our last call, did interfere a little bit with the pace. Some investors prefer local visits to Brazil to witness the companies firsthand and had to change their minds and redo their processes because some of those visits were not possible. This impacted not only us but also every fund globally. However, we have overcome that and as we mentioned in our last call, things are now heading in the right direction. We expect the first close in this quarter. Fundraising is always a natural process and it's hard to predict the future; there have been various indicators that we will have good results. Our KPIs are following the trends we’ve seen, where 70% to 80% will come from re-ups and 20% to 30% from new investors, aligned with past funds. The performance metrics are very similar to what we experienced in previous fundraising cycles.

And just to help you out with your model, fundraising is a metric that we report, and we will continue to report every quarter. I encourage you, as we move forward over the year during the reporting for the first quarter, we will clearly present where we stand with that not only showing that on the roll-forward AUM but also providing more clarity on our progress.

Very clear. Thanks!

Thank you. Our next question comes from the line of Guilherme Grespan from JPMorgan. Your line is now open.

Hi, Alex, Marco, Josh. Thank you for the call. Just two quick questions for you from my side. The first one, it's more of a technical question. We had $2 million expenses in line that you guys called default consideration. I just want to make sure we understood correctly that this is a retention bonus for Moneda's actives and if we're going to see this $2 million repeated going forward every quarter. And then the second question is related to incentive fees from Patria itself. We have been seeing a very good 2019, 2020, a little bit more modest, but we still saw collection. Of course, last year was a little bit more challenging, but just want to touch base on the outlook for this year. We have been seeing markets rebounding, FX doing well. Just want to get an idea if those funds have high watermark, how close you guys are to this performance collection, and the outlook for this year for this line. Thank you.

For the first one, your statement is correct. This is deferred compensation for Moneda. What you're going to see over time, as we indicated in the third quarter on the reports and acquisition of Moneda, is that there is a deferred compensation of $59 million. The way this flows through into our financials is every month, you're going to see this amount being accrued through our balance sheet. And that's the amount that drives that increase you see basically every month over the upcoming period of time. Regarding the second question, I can provide some technical perspective; Alex will jump in to discuss the performance. What you'll see is that the incentive fee accrued for our full-year has mostly been coming from Moneda. The high-yield funds have outperformed the market significantly, while the equity funds, both in Patria and Moneda, didn't contribute with incentive fees significantly over the past year due to market fluctuations. As we maintain a positive view on the outlook through this year, most of our funds respect the high watermark. While we still have a long way to go, this year’s prospects seem to improve compared to previous years.

And just to complement here, Marco, I think most of our credit funds and listed equity funds charge incentive fees against the benchmark. Even if our fund did not perform as expected, for example, if our fund was down 2% for the year but the benchmark was down 8%, we performed better than the benchmark. Therefore, we still collect incentive fees. That also adds a layer to our listed equity funds, especially on the credit side. Thank you.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to CEO Alex Saigh for closing remarks.

Well, thank you, Operator, and thank you all for participating. It's been a real pleasure to be the CEO of this company in 2021. Thank you as for your support. Thank you to all our shareholders for your support and to the team and our limited partners for also their support and the stamina and competence for delivering such great results. I am very proud of Patria, the team, and our 2021 results. Now heading into 2022, we again provide guidance of 50% growth in fee-related earnings. We had a good January and are pushing forward to deliver results again. I'm very excited to be here. Thank you for your support. Be well, be safe. Hope to see you guys in-person, and that means that we are over with this COVID craziness. Again, be well, be safe, hope to see you soon, and thank you very much.

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