Earnings Call Transcript - PAX Q1 2024

Andre Medina, Shareholder Relations

Thank you. Good morning, everyone, and welcome to Patria's first quarter 2024 earnings call. Speaking today on the call are our Chief Executive Officer, Alex Saigh; and our Chief Financial Officer, Ana Russo. We are also joined by our Chief Corporate Development Officer, Marco D'Ippolito; 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 6-K 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. 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 20-F annual report. Also note that no statement on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Patria funds. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards, or IFRS, as opposed to U.S. 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. Reconciliations of these measures to the most comparable IFRS measures are included in our earnings presentation. Now I'll turn the call over to Alex.

Alexandre Teixeira de Assumpção Saigh, CEO

Thank you, Andre, 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 $0.21 per share, and announced a quarterly dividend of $0.18 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 remains our primary objective, and this strong performance continues to support our healthy Net Accrued Performance Fees balance of $514 million, or $3.41 per share, as of March 31. Total AUM and fee-earning AUM have grown more than 17% and 20% from 1 year ago, respectively, with only 1/3 of this growth coming from acquisitions. This past Monday, we were thrilled to announce the closing of our acquisition of abrdn'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 position Patria as a premier gateway to global private markets for underserved investors in LatAm. Also on the M&A front, we are making 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 year-over-year growth of 15% and over 17%, respectively. Digging deeper into our expanding platform and pro forma for acquisitions, our 1Q24 fee-earning AUM reached over $34 billion, representing over 4x growth in the 3 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 are highlighted by the fact that, number one, we have grown from a 2-product asset manager at the time of our IPO into a diversified alternatives 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: U.S. 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 inflows 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, complementary and differentiated investment strategies, and new distribution capabilities. 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, Private Equity International released its 2023 PEI awards ranking Patria Private Equity 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 IRR in U.S. dollars of our flagship private equity funds of 17.5% as of the 1Q24. For comparison purposes, as of 3Q23, the latest available market data from Cambridge Associates, our pooled performance was 18.3%, which represented 11.9% of excess returns over the past 20 years relative to Cambridge benchmark returns in LatAm. Over the same period, Patria Private Equity generated excess returns relative to Cambridge benchmarks when compared to emerging markets, Asia, and the U.S., with excess returns of over 7.1%, 7.2%, and 3.3%, respectively. In what remains a challenging private equity fundraising environment, this strong track record helps our fundraising efforts. In 1Q24, 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 U.S. 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 developments, in 1Q24, we raised over $60 million for one of our infrastructure corporate funds, with a 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 Colombia 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 IRR in U.S. dollars for our 2 latest vintage funds was 12.3%, outperforming the Global Infrastructure median benchmark and the Dow Jones Brookfield Global Infrastructure Index by 4.1% and 12.4%, respectively. Finally, in 1Q24, we contributed BRL 50 million, or approximately $10 million, out of a limited capital exposure of BRL 100 million, or approximately $20 million, in order to provide seed 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 team 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 4 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 3 largest strategies, LatAm high yields, LatAm local currency, and Chilean fixed income, have each outperformed their relevant benchmarks for all reported periods: 1Q24, 1-year, 3-years, 5-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 1 year ago and more than 4% sequentially. In addition to the 3 aforementioned strategies, Patria's diversified credit platform with approximately $6 billion in AUM offers funds in private credit, infrastructure 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 U.S. 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 Echeverria, Moneda's founder and head of Patria'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 19.6% return in the past 12 months and a 13.5% annualized return since inception, which translates into a 45x multiple for capital invested from Day 1. 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 PIPEs. With regard to PIPE, we were very pleased to launch our PIPE Chile this quarter and closed the fund with an initial $55 million raised in 1Q24, which we believe is well positioned to scale. Focusing on our next vertical, real estate fundraising continues on 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 Bancolombia, adding a $1.4 billion real estate investment trust and best-in-class distribution capabilities in the Colombian market. One month later, we announced an agreement to acquire Credit Suisse's 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 markets 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 3 strategies, primaries, secondaries, and co-investments, have generated consistent and strong returns, with pooled IRRs in euros of 18% 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 of 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 complementary pillar of growth as we serve as a gateway for Latin American investors to private markets on a global scale. Before I hand the call over to Ana 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 pan-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 pan-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 Ana.

Ana Russo, CFO

Thank you, Alex, and good morning, everyone. It was indeed a great start of the year, as Patria 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 reclassified 2 line items on our non-GAAP P&L, which had no significant impact on our reported results. First, rebates originally under the expense line, Placement Fee Amortization and Rebates, are now directly deducted from fee revenue as a contra revenue item, making our fee revenues more comparable with peers. This has no impact on reported Fee Related Earnings, but does slightly increase our reported FRE margin by around 2.3 percentage points in first quarter '24 and 1.6 percentage points in 2023. Second, some realized gains and losses were reclassified below distributable earnings, and this move makes our DE even closer to a cash-based metric. Further details on these 2 reclassifications can be found on our earnings presentation, which, among other things, highlights that $1.5 million of unrealized gains that were moved from net financial income and expense to a new line called Unrealized Gains/Losses on Investments, below DE, would have decreased 2023 distributable earnings per share by only approximately $0.01. As mentioned by Alex, following the completion of the acquisition of the Private Equity Solutions business from abrdn, we have now launched a new vertical, global private market solutions, or GPMS. This vertical, with pro forma fee-earning 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, Patria's platform will be based in 6 verticals: private equity, infrastructure, credit, real estate, public equities, 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 reclassifications noted earlier. Q1 2024 FRE was in line with Q4 '23, when excluding the seasonal and one-time impacts from the fourth quarter of 2023 as our FRE continues its growth path. Total fee revenues in Q1 '24 increased by $4.5 million, or 8%, from Q1 '23 to $6.6 million. This increase was mainly driven by growth in credit fee earnings AUM as a result of net inflows and appreciation in our credit funds, which drove an approximate 20% increase in related fee revenue. Higher year-over-year fee revenue also benefited from the November '23 closing of our partnership with Bancolombia and new commitments and deployments in Private Equity Fund VII, which continues to fundraise. Excluding Q4 2023 one-time impacts, our fee revenues continued to grow sequentially. These one-time impacts 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 personnel expenses plus G&A were $24.8 million for the quarter, mostly in line with Q1 '23, adjusted to reflect the reclassification noted earlier. Patria delivered distributable earnings of $31.3 million in Q1 '24, equating to $0.21 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 a dividend per share of $0.18 for Q1 '24, which reflects an 85% payout ratio. As mentioned previously, beginning 2024, we expect to distribute 85% of our distributable earnings, excluding performance-related earnings and realized gains from the 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. 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 the real estate business from Credit Suisse, including related expenses. Future obligations will be funded by a combination of cash, debt, and our equity. In regards 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 targets 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 $0.99. However, the full year benefit of the closing M&A will only take place in 2025, where our FRE target ranges between $200 million and $225 million. That gives us an FRE per share between $1.25 and $1.40, already including any additional expected share issuances. Therefore, our compounded growth between 2023 and 2025 in FRE per share could be up to 40%. Net Accrued Performance Fees were up almost 20% versus Q1 '23, reaching $514 million, with over $300 million coming from our 2 most mature funds: Infrastructure Fund III, currently in the catch-up phase; and Private Equity Fund V, also undergoing the same process. Despite strong underlying performance, quarter-over-quarter Net Accrued Performance Fees decreased by 4%, mainly due to the share price of our publicly listed companies and currency. These accruals now represent $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 in performance, fundraising in real estate, deployment in infrastructure, and in addition to new acquisitions. As a result, we remain confident in reaching our $170 million FRE goal for this year, obtaining a margin between 56% and 58%. This slightly lower margin reflects the nature of our newly acquired and pending acquisitions. We expect FRE growth to be back end-loaded towards the second half of 2024 due to the combination of organic growth and the timing of the closing of our acquisitions.

Alexandre Teixeira de Assumpção Saigh, CEO

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 Equity Solutions business from abrdn, and good progress 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 with 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.

Operator, Operator

Your first question comes from Craig from Bank of America.

Craig Siegenthaler, Analyst

It's Craig Siegenthaler from Bank of America. 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 in certain quarters when you have a larger close with Private Equity VII and Infrastructure V when those get announced?

Alexandre Teixeira de Assumpção Saigh, CEO

Craig, I think I would divide the $4 billion equally between the next 3 quarters. Our history shows that the third and fourth quarters are a little hotter; we raise a little bit more money. I think that's basically human nature. It gets to the second semester, everybody has drives and goals to meet. And we also, our sales team also have goals to meet. So they actually push a little harder. And the first quarter is normally a little slower because people come back from the end of the year vacation, whatever. So that has been our tradition for the last 20 years, to be honest. So I think it's going to 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 going to maintain the same pace. So again, I would divide the $4 billion equally. We have this chunky, as you mentioned, fundraising for Infrastructure Fund V and Private Equity Fund VII, but I think they're going to be evenly distributed as we see, as you said, our schedule of road shows and people that are very, very advanced in the due diligence going to their investment committees, etc. We definitely see things moving more or less equally over the next 3 quarters, that's correct.

Craig Siegenthaler, Analyst

Just for my follow-up, you guys have been very active on the M&A front, arguably more active than I think anyone predicted 2 years ago. And you're clearly consolidating the private markets industry in LatAm. 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 guarantee today.

Alexandre Teixeira de Assumpção Saigh, CEO

Thank you. I think we are managing well and working hard to consolidate the market in Latin America. This is very important. Most of our clients are global and local institutional clients, and they prefer fewer relationships globally and locally. We aim to be that single relationship in Latin America, offering multiple products across various asset classes, as you can see from our diversification. We are well positioned with the assets we've already acquired, which supports our continued organic growth. Over the past four quarters, our increase in Fee Related Earnings has been largely driven organically, as we did not finalize any major acquisitions last year. We signed agreements but did not complete them. We closed the abrdn global private markets solutions business acquisition in April, which was not included in the first quarter of 2024. Therefore, we are in a solid position moving forward. We may consider minor acquisitions, but nothing major. The only market we still intend to enter is Mexico. We sell to Mexican institutional investors but do not have a local asset management business there, in contrast with our operations in Colombia, Chile, and Brazil. We are exploring opportunities in this market, particularly in real estate, which has a considerable market for real estate investment trusts in Mexico, valued around $50 billion. However, we are not planning anything as significant as the Credit Suisse real estate business or the abrdn global private markets solutions business. Regarding share dilution, Ana provided information on Fee Related Earnings per share, which ended at $0.99 for 2023. We discussed the potential for Fee Related Earnings per share in our conversations. For 2024, we are expecting between $1.08 and $1.12, representing an increase from $0.99, calculated from $170 million divided by the anticipated number of shares at the year's end. We plan to issue approximately 3 million to 4 million shares for our acquisitions by the end of the year. This year, we are managing to complete acquisitions sooner than expected, and the likelihood of reaching the $170 million target is improving. If we have the Credit Suisse real estate funds transferred in the second quarter, that probability will increase further. I am confident we will achieve at least $170 million in Fee Related Earnings this year. Looking towards 2025, I want to emphasize Fee Related Earnings per share because we will issue shares to finance acquisitions. Retaining exceptional managers who receive shares that have a five-year lockup is strategic for us. While the results from these acquisitions may not be immediate, the dilution comes right away. By 2025, as we realize the full benefits of the businesses we've acquired, we project Fee Related Earnings per share will range from $1.25 to $1.40. When comparing the $0.99 in 2023 to our projection, we anticipate a 30% to 40% increase over two years, which translates to a 15% to 20% annual compounded growth rate. I hope sharing our Fee Related Earnings per share targets helps clarify our expectations regarding share dilution.

Operator, Operator

The next question comes from the line of William, from Itau BBA.

William Buonsanti Barranjard, Analyst

So I would just like to confirm some information about the 2 recently announced M&As. So regarding the abrdn one, I have a question. When should we expect it to show in your FRE numbers? So can I consider already the 2 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?

Alexandre Teixeira de Assumpção Saigh, CEO

William, thank you for your questions. This is Alex again. For your inquiry about the abrdn numbers for May and June, we completed this last Monday, April 28th. Starting on May 1st, we will include those numbers in our profit and loss statement. They will be reflected in our P&L. As you know, the abrdn business has a positive free revenue estimate. To refresh your memory, it is an $8 billion fee-paying assets under management business. If we consider it has around 30 to 40 basis points, this gives you guidance on the fee-paid AUM growth. With a 30% margin, we expect a full year impact of about $11 million in free revenue. Specifically, we estimate approximately $5.5 million of free revenue on a quarterly basis. As mentioned, we will account for the two months from May going forward in our results. And then for your second question, I think conservatively we are expecting the Fee Related Earnings from the Credit Suisse real estate business as of '25 or end of '24, which basically will be insignificant, but '25 onwards, so conservatively, I would suggest to use that as a baseline, okay?

Operator, Operator

Your next question comes from the line of Beatriz, from Goldman Sachs.

Beatriz Bomfim de Abreu, Analyst

So my question is on expenses. So we saw an increase in both personnel and G&A 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 abrdn's acquisition in the last 2 months of this quarter, 2Q, 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?

Ana Russo, CFO

This is Ana. I want to reference our presentation to clarify the numbers we are discussing. Our personnel expenses decreased from $16.8 million in Q1 2023 to $16 million, while our G&A expenses increased from $7.6 million to $8.8 million. Overall, there is a slight increase of 0.4% in operating expenses. Regarding personnel expenses, there is a positive trend, and this figure of $16 million likely incorporates our equity compensation program. Additionally, as we advance in our business, we're transitioning some personnel expenses into G&A. Our G&A this quarter reflects increased investment in marketing and commercial activities, which is typical as the year has certain seasonal fluctuations in activities. Furthermore, this quarter includes expenses related to the Fund Colombia, impacting both our revenue and expenses, as well as contributing to our inorganic expenses.

Alexandre Teixeira de Assumpção Saigh, CEO

I think the second question was on the FRE margin.

Ana Russo, CFO

If we look into it, we mentioned during my pitch that we believe the margin could be between 56% and 58% for the year. This estimate primarily reflects the nature of the new business we are acquiring, which has a lower FRE margin compared to our current business. That's why I also mentioned that we expect a consolidation phase going forward. In the future, this margin should progressively increase, but for this year, we anticipate it to be between 56% and 58%.

Alexandre Teixeira de Assumpção Saigh, CEO

What has happened over the last years is that when we went public, our margin was around 60%, or 60.9%, 61%. Then, after the Moneda acquisition, the margins decreased to around 55%, 56%. We pursued synergies, which brought margins back up to nearly 60%. Following subsequent acquisitions, margins dropped slightly. Last year, margins were around 61% again since we did not complete any acquisitions; it was a year of integration, and we managed to push the margin for the entire year of 2023 back above 60%. I believe this year and next year, 2025, will follow a similar trend, although this year may see a slight decline to between 56% and 58% due to the newer acquisitions, which resulted in initial redundancies and lower margins because the acquired businesses were operated differently and with lower margins by their previous owners, Credit Suisse and abrdn. As we integrate these businesses, we will realize synergies. I am confident that we will return to 60% margins as we look towards 2025 and beyond. This year, the margins are slightly compressed due to these two acquisitions, but we have anticipated this. We have extensive experience in our private equity firm with over 300 acquisitions across many sectors. We are comfortable with the model of making acquisitions, integrating systems, processes, culture, and people. This approach has successfully increased margins in my previous roles as CEO of several portfolio companies, and I continue to apply it here with our team.

Marco D'Ippolito, Chief Corporate Development Officer

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 assets and now you see GPMS there with $1.9 billion. What you're going to see in the next quarter is we're going to aggregate $8 billion to that $1.9 billion, or at least $8 billion. And the average fee-paying AUM is at 50 to 60 basis points. And the margin is between 30% and 40%. So what you're going to see...

Alexandre Teixeira de Assumpção Saigh, CEO

And I think my final comment here, Beatriz, I think long answer to your question, but I think I would like to add another comment here before we turn to another question. The whole idea was back then, prior to the IPO, I think, is to have other asset classes that for Patria are significant and has a scale and therefore also has margins. So private equity was already there. We already had a reasonable big asset class at that time. It was around 45% of the $8 billion fee-paying AUM. Now it's around $11 million. So it basically doubled, more than doubled. Infrastructure is the same. Sizable, and we reach more size. And with the new vintage fund, Infrastructure Fund V, 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 AUM there in credit, where we have a good amount of private credit, infrastructure private credit, mid-market high-yield Brazil private credit. Now we have a dollar-denominated LatAm private credit. All these products we launched, of course, with the intelligence of our Chilean partners. So that's going to become $7 billion, and I see that asset class also moving ahead of $10 billion, together with the private equity over $10 billion, infrastructure over $10 billion. Then comes the real estate, and we did several acquisitions there. And with the VBI acquisition that we did and also the Credit Suisse real estate acquisition that we did, it's already a $6 billion, $7 billion asset class, and I see that as also going to over $10 billion. 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 is very ripe for us to participate in that market. Finally, now GPMS, already starting with over $10 billion. So another. So that's asset class number 5 that I see $10 billion-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 5 asset classes that I see $10 billion-plus, going forward, with very good margins and very scalable in LatAm. So that was the whole strategy: go into other asset classes that we have a very large tangible addressable market that we can become significant and we can scale up, with a magic number that I gave of $10 billion-plus. And with that, margins come up again to the 60% FRE margin. So 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.

Operator, Operator

Your final question comes from the line of Ricardo, from BTG Pactual.

Ricardo Buchpiguel, Analyst

I have a couple of questions. First, I noticed that during the quarter, the management fee yield declined by about 12 basis points to 1.07% in Q1. I would like to understand the reasons behind this decline, whether it is due to a mix issue or adjustments in certain segments, and what a sustainable level might look like considering the abrdn acquisition and without it, just to clarify what occurred. Additionally, now that the abrdn acquisition is approved, I presume that realizing all the top-line synergies will take some time. I would like to get more insight into the current environment regarding inflows and AUM growth, particularly for this year.

Alexandre Teixeira de Assumpção Saigh, CEO

Thank you, Ricardo, for joining our call. As indicated on Page 13 of the presentation, the management fee yields are influenced by the mix of assets. We had initially guided for a $5 billion raise in 2023 and ended up raising $4.8 billion, as reported in our fourth quarter '23 call in February. This amount included more real estate and credit than we anticipated. These two asset classes typically have lower fees compared to private equity and infrastructure. We have raised significant amounts in infrastructure and private equity as well, but fees are charged only on invested funds. In contrast, fees for real estate and credit start accruing as soon as the funds are raised, since we charge based on net asset value, particularly in the case of Brazil's real estate investment trusts. As we deploy the capital raised in 2023 throughout 2024, we expect to see an increase in our average effective management fee rates. Regarding your other question related to the GPMS acquisition, as Marco mentioned earlier, this will have a lower fee structure. We anticipate that for 2024, our effective management fee rate will remain similar to what it is today, as we will be investing in private equity and infrastructure, which generally yield higher fees, while also incorporating the lower fees from GPMS. Therefore, our projections suggest that we will maintain the effective management fee rate you see on Page 13.

Ricardo Buchpiguel, Analyst

So if I may do a quick follow-up here on another topic, we saw that during the quarter the level of deployments in private equity and infrastructure declined a little bit. So it was previously around $100 million, and it was around $400 million, if I'm not mistaken, in Q1. 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 kind of a more structured deceleration in terms of deployment?

Alexandre Teixeira de Assumpção Saigh, CEO

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 going to see the first quarters are a little slower. And again, don't ask me why, but I think there's a big human nature factor there. People get close to the end of the year, they want to close a deal. They have goals to meet. And not only the seller wants to sell, the buyer wants to buy, and the advisers want 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 privatizations and concessions, maybe the government has the same kind of human nature trait. They don't do much concessions and privatizations in January and February. I think it has to do with everything that I said.

Operator, Operator

This concludes the question-and-answer session. I would now like to turn it back to Alex Saigh for closing remarks.

Alexandre Teixeira de Assumpção Saigh, CEO

Thank you very much. The key takeaway here is our growth in FRE per share. We're aiming for healthy growth this year compared to next year. The FRE per share for this year is projected at $1.08 to $1.12, up from $0.99 last year, which is influenced by our issuance of shares and the delayed benefits from acquired assets. Looking ahead to 2025, with a full year of acquired assets reflected in our financial results, we expect FRE per share to be between $1.25 and $1.40, which aligns with the FRE target of $200 million to $225 million that I mentioned earlier. I have confidence in these projections. Even comparing the $1.40 and $225 million to $0.99, we see a 40% increase in FRE per share from 2024 to 2025, and we believe we will achieve these targets. The figures related to FRE per share help clarify concerns regarding potential dilution from acquisitions. Additionally, using shares for acquisitions is strategically essential for retaining our portfolio manager, since we commit these shares for five years. Retaining talent is crucial in our people-driven business, and even if we had unlimited resources on our balance sheet, we would still opt to use some shares for retention. Thank you again for your time and support today. I recognize it’s been a busy day, and we appreciate your participation in our call. I hope to see everyone in person soon. Thank you, and goodbye.

Operator, Operator

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