Earnings Call
Patria Investments Ltd (PAX)
Earnings Call Transcript - PAX Q2 2022
Operator, Operator
Thank you for standing by and welcome to the Patria Investments Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised, that today's conference call is being recorded. I'd now like to turn the conference over to your host for today, Josh Wood, Head of Shareholder Relations. Please go ahead.
Josh Wood, Head of Shareholder Relations
Thank you. Good morning, everyone, and welcome to Patria's second quarter 2022 earnings call. Joining today are 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 second quarter 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 20-F Annual Report. Also note that no statements on this call constitute an offer to sell or 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 US GAAP. Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable IFRS measures calculated in accordance with IFRS are included in our earnings presentation. On headline metrics, Patria generated fee related earnings of $31.1 million and distributable earnings of $29.2 million, or $0.20 per share for the second quarter of 2022. We declared a quarterly dividend of $0.1609 per share payable on September 16, to shareholders of record as of September 02. With that, I'll now turn the call over to our Chief Executive Officer, Alex Saigh.
Alex Saigh, CEO
Thank you, Josh. Good morning, everyone and we appreciate you joining us this morning. In the second quarter, Patria continued to execute on both 2022 financial targets as well as the long-term strategic growth plan despite the difficult backdrop across global financial markets. We remain on track for our 2022 full year fee-related earnings guidance of 50% year-over-year growth, having delivered $63 million of fee-related earnings in the first half of the year. After generating $0.44 of distributable earnings per share and cumulative dividends of $0.37 per share through the second quarter, we are delivering an analyzed yield of more than 5% in 2022, based on recent share price. We had $764 million of new capital inflows across the platform, putting us over $2.2 billion for the first half and more than halfway of our $4 billion fundraising target for the year across a diverse range of products in each of our verticals. We deployed about $650 million in our drawdown funds to drive continued fee revenue growth. Our total assets under management and fee earning AUM are up 66% and 126% respectively, compared to one year ago, illustrating the expansion and diversification of our platform in the short time since our IPO. We're also focused on building our base of permanent capital, having grown to more than $1 billion or 6% of total fee earning AUM in a priority of new initiatives in real estate and infrastructure with a significant opportunity to scale and consolidate. Over 20% of new capital coming into the platform so far this year is permanent capital. Turning now to highlights across our strategies. Our biggest story of the quarter was the announcement of our acquisition of VBI to anchor our real estate platform in Brazil and we recently closed on the first tranche of the transaction for 50% ownership. This transaction is a crucial step as we look to build out the real estate vertical, bringing in an experienced and proven leadership team and over R$5 billion or more than $1 billion in a very high quality AUM, where more than 70% is permanent capital. In a Brazilian REIT market that has grown at more than 20% over the last five years and is still under penetrated, VBI has grown even faster to become one of the largest independent players in an asset class that is the key gateway to alternatives for many local investors. With VBI as a core, we believe we are now well positioned to grow our real estate business in Brazil in a meaningful way, and potentially replicate a strategy in other Latin American countries. In private equity, we made our first deployment for our next vintage fund, allocating $450 million to launch the first thesis in that fund. We are highly focused on our fundraising efforts with additional closings expected in the back half of 2022, and then finishing in 2023 and we continue to feel good about our targets. We also expect to hold the first closing of our new growth equity fund here in August at a time when market dislocations represent great opportunity in the space. Since our funds are largely denominated in US dollars, the strengthening of the dollar relative to global currencies contributed mostly to the valuation impact in the quarter. While we of course see some impact from public company holdings and comps in our quarterly evaluations, our overall portfolio comfortably outperformed Brazilian and Latin American public equity markets in the quarter and we continue to lean forward with confidence on the quality of the portfolio. Private equity funds five and six continue to deliver strong net IRRs at 24% and 16% respectively in US dollars. Year-to-date portfolio companies are growing at a healthy 18% organically and 36% including M&A and we do not see deterioration in our overall business plan and target exit values. We remain very active within the portfolio having now signed 18 M&A transactions so far this year with at least as many targeted for the second half. In infrastructure, we continue to accelerate towards the launch of Infrastructure Fund V as Fund IV nears the end of its investing cycle. In the second quarter, the acquisition of nine hydropower assets drove incremental deployment of approximately $200 million from Fund IV. Just recently, we announced fundraising of nearly R$200 million for our second core infrastructure fund, which adds more permanent capital AUM and we will jointly invest in these hydro assets. This fund continues to build on our income focused core offering and provides better access for local investors in Brazil. Given the acceleration we have seen in the flagship fund timeline, we now expect a dedicated, renewable pool of capital to be raised as a sidecar with Infrastructure Fund V as it would not make sense to raise a separate fund concurrently. We continue to see demand to scale the combined size by 50% relative to Infrastructure Fund IV, given the extensive and attractive pipeline to address in the region. The existing infrastructure portfolio continues to perform very well with the latest two vintages delivering 28% and 12% net IRRs in the US dollars. Second quarter valuations were up to $135 million excluding currency impact driven by investments in renewable energy data centers. Turning into credit, despite the tough quarter for the asset class across the globe, the non-high yield credit strategy outperformed the benchmark by more than 400 basis points in the second quarter and now 700 basis points year to date. Six hundred basis points of that outperformance is attributable to selectivity or the team's ability to pick the best performing assets with the remaining hundred basis points attributable to actively shorting the duration of the fund. Both high yield and investment grade credit yields in Latin America are among the highest in the world with one of those high yield funds currently delivering an impressive 12.3% yields at the end of July. Our in-house bottom-up credit analysis shows that Latin American corporates face low refinancing risks with very reasonable liquidity and falling leverage demonstrating that even at these yield levels, there is no expectation of credit defaults compared to other emerging markets with highly active management. Our team can swiftly react to the environment, to be opportunistic and take advantage of mispricing relative to the fundamentals. We also saw the recent announcement of a key $500 million anchor commitment for our new credit fund. As we seek to ramp efforts on that fund in the back half of the year, this fund will have a closed-end drawdown structure like our flagship funds, and we'll seek to capitalize on the sizable infrastructure opportunity that I referenced just a moment ago in public equities. Although macro certainly impacted absolute returns in the quarter, there is also clear demonstration of portfolio quality with our more constructivist Chilean small-cap strategy outperforming in the benchmark by 1400 basis points in the second quarter. Now zooming back out the first half of 2022 brought challenging conditions to every corner of the investment world, driven by a combination of persistent inflation, rising interest rates, and disruption of trade. It comes as no surprise that global equity and credit markets had a tough quarter. We and our peers are not immune to some of the short-term impacts of this environment, but importantly, it does not define our success as fundamentally long-term investors. We are confident the alternative asset management industry will continue to be a model of resilience, secular growth, and access to returns. Our business model is built to be patient and opportunistic, not just to weather these storms but to do some of our best work in times of market dislocation within our industry. We also believe Patria differentiates itself in some very interesting and attractive ways in the current environment. And I want to spend just a few minutes reinforcing some of those points. First, the default assumption about rising interest rates is that returns in private active portfolios will be squeezed by the higher cost of leverage. Put simply, Patria's private active business is not running the traditional LBO model and does not depend on leverage to drive transactions or target returns. It has simply never been practical operating LBOs in our region of the world in developed markets; private equity net debt-to-EBITDA ratios average near five times at the time of acquisition compared to just 0.4 times historically. Our strategy generates alpha through consolidation, organic growth, and operational improvement, and eventually multiple expansion as we de-risk and institutionalize businesses to create market leaders. In our infrastructure business, leverage is typically in the form of project finance with fixed debt structured alongside long-term revenue contracts, and in credit, our exposure to predominantly floating-rate debt minimizes risk, and even allows us to benefit from rising rates. Second, focusing on Latin America, Patria has operated and grown its platform amid high interest rates and inflation since our inception; therefore, the environment today does not feel like an exception to us. Our investment strategy has been forged over years of experience now entering our seventh vintage for private equity and fifth for infrastructure, with many lessons learned. The result is an investment portfolio focused on core basic needs factors that we can weather persistent inflation and GDP volatility, thus outperforming through economic cycles. Third, we think Latin America continues to look well-positioned as a destination for global capital in the current backdrop, especially within allocations to emerging markets. The region is a net exporter of commodities that are in high demand, and we believe the resulting gains in terms of trade will continue to be an economic tailwind. Latin America has historically demonstrated both low geopolitical risk and a comparatively low correlation with the US and developed markets. Right now, the region is likely near the peak of its monetary tightening cycle compared to the US and Europe. Therefore, it is no surprise that the expected economic growth is being revised upward in Latin America and downward in developed countries. Finally, there are significant benefits of scale in our industry, and these apply at the regional level as well. Latin America and emerging markets present distinct challenges relative to developed markets, and we believe Patria has a real home-field advantage. We offer a compelling combination of proper scale and localized industry expertise, with the scale allowing us to pursue complex projects that smaller local competitors cannot. The boots on the ground provide a competitive advantage that large global players find difficult or inconvenient to replicate. We are able to deliver on our regional consolidation strategy with three M&A transactions now to date in large part because of our people, the strength of our brand, and our public market currency as a firm. We believe Patria is uniquely positioned to thrive as a dominant alternatives manager focused in Latin America, and our story is only in its early chapters. Let now turn things over to Marco to cover the results in more detail. Marco, over to you.
Marco D'Ippolito, CFO
Thank you, Alex, and good morning, everyone. Patria's financial results for the second quarter reflect our continued track toward our 2022 guidance. Fee-related earnings were $31.1 million in the second quarter '22, up 76% compared to the second quarter '21, driven by organic growth in private equity and infrastructure as well as the addition of Moneda. On a year-to-date basis, fee-related earnings of $52.9 million were similarly up 80% from the prior year-to-date period. The FRE margin was 56% in the second quarter '22 and the similar 57% year-to-date, tracking in line or slightly above our guidance for the year. Driving the FRE growth, fee revenues of $55.6 million in the second quarter '22 are up 73% from the second quarter '21, and year-to-date, fee revenues of $110.6 million are up 76% from last year. On a year-to-date basis, about 25% of that 76% growth is organic and driven by the deployment of $2.5 billion from the flagship funds in 2021, and the remaining 51% driven by the acquisition of Moneda. Year-to-date accrued incentive fees, which are accrued in certain credit and public equity funds and mostly realized at year-end, stood at $4.9 million at June 30 lightly up from $4.2 million at March 31 due to benchmark outperformance despite the challenging quarter. Personnel expenses were $15.7 million in the second quarter '22, up 55% from the second quarter '21, and $30.8 million year-to-date, up 51% from the prior year-to-date period driven mostly by the addition of Moneda's team. On an organic basis, year-to-date compensation increased by just 4% compared to the prior year-to-date period. Administrative expenses were $7.4 million in the second quarter '22, up from $3.8 million in the second quarter '21, and $13.9 million year-to-date up from $6.2 million in the prior year-to-date period. While some of these increases are also driven by the addition of Moneda, we did have organic increases in areas like professional services and IT due to new public company-related expenses as well as increases in travel and entertainment as teams resume more normalized travel activity as pandemic restrictions fade. Placement costs of $2.9 million year-to-date are up from $1.2 million in the prior year-to-date period due to increased fundraising activity as expected. These costs are generally amortized over the relevant investment period of each fund being raised. Net financial income was a negative $0.8 million in the second quarter '22 driven primarily by unrealized impacts from currency on our balance sheet investments in the quarter. On a year-to-date basis, net financial income stands at $4 million. Distributable earnings of $29.2 million in the second quarter '22 compares to $74.2 million in the second quarter '21, with the difference attributable to the benefit of performance-related earnings of $56.4 million in the second quarter '21. DE per share of $0.20 in the second quarter '22 will generate a dividend of $0.1609 per share for shareholders, and year-to-date our DE per share of $0.44 has generated cumulative dividends of $0.37, which would equate to a yield of more than 5% on our recent share price. The reconciliation of distributable earnings to IFRS net income is fairly consistent with the schedule from last quarter, with most amounts attributable to acquisition-related costs. The amortization of intangible assets is rising primarily due to the inclusion of impacts from former acquisitions. The notable addition to the reconciliation is costs related to our recent stock listing. These costs are recognized in IFRS and amortized over 15 months and will be adjusted from the DE in this initial periods but later recognized through our DE as an offset to the sponsor promote at the point of realization. Net accrued performance fees stood at $419 million at June 30, compared to $503 million last quarter, but still up 28% from one year ago. The US dollar strengthened significantly against nearly all global currencies in the quarter, driving relative local currency depreciation. These accordingly impact the USD fund valuations in the quarter, along with the general weakness in Latin American equity markets. While the accrual can, of course, retrace in volatile quarters like this, we continue to feel very confident in the quality of our portfolio, as Alex noted. The current accrual stands at nearly $3 per share, which is significant relative to our current share price. Turning to AUM; Total AUM was $26.3 billion at June 30 down from $27.6 billion last quarter, due to currency and valuation headwinds in the second quarter, but up 66% from $15.8 billion one year ago, demonstrating the growth in our platform. Total AUM is up 10% year-to-date driven by strong appreciation in the first quarter and the acquisition of VBI. Note that we have closed on the first tranche of our transaction with VBI and included in our reported AUM. Economics for our initial 50% stake will be effective for the full third quarter. Despite the macro environment, inflows have been strong in the first half of '22, nearly $2.3 billion of inflows year-to-date, not including the acquired inflow from VBI, puts us halfway to the $4 billion fundraising target for the year. We expect a diverse contribution in the second half of the year led by private equity and credit products, including the pending anchor commitment for info credit, which has not yet been recognized on the upside. We also have a reasonable chance to be approaching a first close for our next infrastructure fund around the new year. The earnings AUM of $18.8 billion at June 30 is similar to the prior quarter as deployment for the first half of 2022 only activates for the second half of the year. The earnings AUM is up 126% from $8.3 billion one year ago, and up 5% year-to-date. We deployed about $650 million from our flagship funds in the second quarter '22, which will accrue to fee earning the AUM for the second half of the year. $450 million came from the first pieces in our new vintage private equity fund, though a typical fee holiday for first closers will apply. Additional closings for that fund in the second half of the year. However, we'll have a retroactive catch-up to July 1st on this capital that has been invested. As Alex noted, our 2022 financial guidance for the year remains consistent, we expect to grow FRE by at least 50% year-over-year, we have generated 63 million in FRE throughout the second quarter and considering any growth in the second half of the year, plus the realization of incentive fees at the end of the year, we feel very confident in achieving our target. It bears repeating the benefits of long-term capital and sticky management fees allow us to generate reliable fee-related earnings for our shareholders. Since our IPO, we have doubled the basis of fee-earning AUM that generates those earnings, and that growth is ongoing through the organic scaling of our flagship funds, new fund launches, and M&A; those fee-related earnings are generating an annualized yield of approximately 5% on our current share price. And that is just the baseline. Strong investment performance in our flagship fund has generated a performance fee accrual that is still untapped with the 2014 and 15 vintage fund in particular representing significant earnings upside as realizations materialize. Over the next few years, we continue to execute on our journey as the premier alternative asset management platform in Latin America. And we believe Patria can deliver premium shareholder value in the coming years. We're now happy to take your questions.
Operator, Operator
Our first question comes from Craig Siegenthaler of Bank of America. Your line is open.
Craig Siegenthaler, Analyst
We wanted to get an update on fundraising. The denominator effect and a crowded private equity backdrop. They are creating some challenges in the US, but partly, I believe, competing within a different sleeve of capital. And in your vertical emerging market private dollars, and now more restricted to two of the biggest economies Russia and China. So what type of impact is all this having on Patria given that it is the largest private markets manager in Brazil and LATAM?
Alex Saigh, CEO
Hi Greg. This is Alex here and thanks for joining the call and again thanks for your patience here. Well, we continue to be very positive on fundraising. That's the general message here. And we have so many processes going on specifically on I go from the macro and then I'll talk of, kind of product by product asset class by asset class. On the macro side; yes, I think you're correct. What we see from investors is number one as it comes to emerging markets, Latin America is in an advantageous kind of phase right now, given the low geopolitical risks and the high geopolitical risks, of course, in Europe, Eastern Europe, more specifically, and the more authoritarian regime that we are now seeing in China. So that puts actually a region of the world in highlighted by investors. In addition, does the nearshoring thesis that favors the region? Also in addition, I think, Latin America was already increasing its market share of the overall allocations within now emerging markets. And if you see the growth of the economies is pretty positive compared to other developed economies. So all, all in all I think, and last, I think also, I think some of our central banks in the region have anticipated a bit the monetary tightening. Now we're seeing that, you know, most of the central banks in the regions are already predicting a loosening up of the monetary policies. Probably most of the average economy will continue even to grow faster in predicting a loosening up of the monetary policies. And probably most of the average economy will continue even to grow faster in 2023 onwards. So in general, that's exactly, what's not on a macro, that's exactly what he said. I think the region has been benefiting from all this, plus of course I forgot here because I forgot here the commodity cycle that was already a big push for the region. In addition to all these geopolitical tensions and risks in Ukraine, commodity prices are driving exports in the region and also benefiting the economies. Then going for a more micro kind of administrative issues here. Now, as you mentioned, mostly in the US, but in other parts of the world, investors have been having to deal with so many funds coming to market, and of course they're overwhelmed. And what they're deciding to do most of them, generalizing here, is basically to focus on re-ups. And definitely we are on that list of re-ups given our longstanding relationships with several institutional American investors, but the process is taking a little longer because it's the same amount of people that they have in their teams. I mean, the institutional American investors, and they have to deal with more volume of funds to be analyzed. We have received, no, I wouldn't say zero numbers, but very, very few notes. And that's why I'm positive on our private equity fundraising process. Because investors just saying, Alex is going to take another month or two, I need to go down a due diligence. My firm has not allowed full travel plans yet, and I have a lot of other funds to analyze. So again, very, very few. I'm not going to say no because it's impossible to say zero no's, but very few no's. It's just a delay in the process. But as you go through other regions of the world back, Greg, that's a different scenario now in the Middle East, for example, which is a major part of our fundraising efforts, is in the opposite side of what I just said. The region was already underallocated to private markets in general alternatives, emerging markets LATAM. And as you know, now, most of the sovereign funds and pension funds in the regions are generating a lot of cash and receiving new cash because of the whole price of oil, et cetera. Asia, the same, I think, Asia's investors kind of were underallocated to emerging markets in the region and everything that I said. So Asia investors are also increasing their allocations to the region. And lastly, and more so the local investors, I think we have been able to fundraise quite healthily in the local markets. We're now running, as we speak, two very big processes with high net and ultra-high net distributors in Brazil specifically. And now we have very, you know, positive news coming from that front. So in the end, I'm positive overall because the region has been benefiting from all this political tensions. And now, I’m not receiving very, very few negatives, just the process is taking a little longer. And we have all of these other regions in the world allocating more through private markets, alternatives, emerging markets, and Latin America specifically. However, what also plays in our favor here is that we have other products also that are flagships in our menu offering that are coming to market in a very positive note. Marco mentioned info credit, for example. So the whole credit story here is very positive given now where interest rates are. And because interest rates are also higher in the region, not only globally, and investors are looking to protect themselves from inflation, and actually take advantage of the higher interest rates. So we did receive a very positive confirmation from an anchor investor of a hundred million dollars for our info credit fund, which is not in the number that we gave you because they have not signed the sub yet, but it has already been published on their websites that they approved because it's a public institution. We also have another public institution that already approved, and officially they have now just to sign the papers. They are another $150 million for the same info credit fund. So very positive news on that front—two anchor investors, one, an international public institution and a local Brazilian public institution, actually sponsoring and anchoring this credit fund. Also, Marco also mentioned in more detail, but we are anticipating our infrastructure flagship fund number five fundraising process because investors not only want to invest more in LATAM, as I just mentioned, but they want to invest in products that are inflation-protected. And that's the case of our infrastructure, flagship development fund number five. We are looking to have a first close within this year, closer to December rather than actually one year from now. Now we were expecting to fundraise infrastructure fund five as of September 23, 2023, and we are looking to have a first close in 2022, late 2022, but within 2022. So having all of these different products to offer as now, private equity goes through this that I just mentioned, we have infrastructure coming back very healthily, and we’re having reverse inquiries for our infrastructure flagship fund number five, which is not very common to have reverse inquiries. Now, investors calling to say, when are you going to go out to the market? Because we're interested in your fund. And also the info credit that I mentioned, which is also a closed-end fund, gives us this long-dated kind of fees to our FRE expectation. So I'm again, of course, everything that is going on, of course, you have to deal with the whole geopolitical situation globally, but in our region we are benefiting from this. We didn't want to benefit from the war, but we are benefiting from the geopolitical sanctions around the world. And you can see it in our numbers—$2.3 billion raised up to now with the $4 billion target. So it looks pretty confident that we're going to reach our target.
Marco D'Ippolito, CFO
Alex, if I can just ask one, I'm sorry, if I could just, if I can just ask one follow up relating to fund seven private equity fund seven, it looks like you raised about $900 million to date. I was wondering if you could help us in terms of timeline for the next set of closes and the final close and your expectations on how big that fund will be relative to the $2.7 billion for private equity fund six.
Alex Saigh, CEO
Yes, we are about now. We were going to have a second close, I think late, late July, the second quarter, but we were running these processes that I just mentioned here, with two big Brazilian ultra-high nets and high net distributors would now and again, given where we were in the process. So we went into August to grab, they were, and it's good news because they were pretty confident that they could raise more money. So actually we're going to have a closing that we are expecting in the late second quarter, in the third quarter as we speak in August and September, plus institutional money coming in. We got some of the institutional money that we already had in the second quarter that with the sub docs signed, we know we're putting everything in this one quarter. Administratively it's easier to have just one closing on the legal side and legal cost. So we just waited a little bit with all these sub-docs that we had signed in the second quarter to join this effort that we are doing in Brazil with high net worth individuals. As far as expectations, I think we are targeting our fund to stand at about $3.5 billion, and I think we're confident that we'll get there. And which is larger than the $2.7 billion for private equity fund six. Yes, I think I can say that looking into the past—even though it's hard to predict—we have exceeded the targets we set in the past. So I think I can say that our target is $3.5 billion.
Operator, Operator
Thank you. Our next question comes from Marcelo Telles of Credit Suisse. Your line is open.
Marcelo Telles, Analyst
Thanks for the opportunity. My question is with regards to the VBI acquisition. You mentioned there's opportunities to leverage on that structure. So I was wondering, this is a $1 billion asset business. How do you see that scaling up over time, and how big do you think that business can be? And given the high rate environment that Brazil is going through right now do you think it can be an obstacle for you to scale that in a timely manner?
Alex Saigh, CEO
No. Thank you. I think it's first of all, hi Marcelo, and nice to see you. And as you know, hope we're going to see each other in person next week. So hopeful looking forward to that and thank you for seeing me next week in person. Taking it one step back, the whole permanent capital business for us is very important. It's already 6% of our fee AUM as mentioned by Marco here, and we were basically zero if you go two years ago. At the time of the IPO, we were one or 2%. So we've been growing that business. It has been growing in general, as mentioned. So have it grow more than the other asset classes to become today's 6% of the total AUM. Not only real estate, but we also launched the infrastructure investment trusts that also add to the permanent capital structure. We are pretty and very positive about it because within the capital structures of our real estate listed assets in Brazil, you have several different themes and strategies. And one of them that has been growing very significantly is the debt-related thesis or CRIs as we call them in Brazil. VBI did launch, it was in the second quarter already a CRI fund and they already had one but they did a follow-up for the fund of the C fund, which is no real estate debt also under the permanent capital structure, and did very well and raised a good amount of money, and they want to raise more. So if the high interest rates do affect corporate office strategies, you have the real estate debt strategies that are growing very healthily. And when interest rates come down, as I know you see that the yield curve in Brazil is already inverted, investors are looking into a decrease in interest rates in the next, whatever 12 months that's as you can see from the waiver yield curve, then the other kind of themes within real estate will also benefit from that falling yield curve. But in general, I think VBI has a very strong name with a very expert and seasoned group of people. We are very positive about that. In addition, we're also looking to other permanent capital structures to increase inorganically or through mergers and acquisitions like the association with VBI, not only in Brazil but in other parts of Latin America. So really targeting for that billion something US dollars to reach a significant part of our AUM. Now, when I look at my peers on a more global basis, I see that 20% to 30% of their fee AUM comes from these permanent structures, and that's a number that I would like to hit over time. Of course, using our cash to do acquisitions to get there faster. That's the number that I think we can go from six to 20% to 30% of AUM in the future.
Operator, Operator
Thank you. Our next question comes from JPMorgan. Your line is open.
Unidentified Analyst, Analyst
Good morning, Alex, Marco, Josh, thank you for presenting the earnings. Our question here for the quarter is actually on specifically on the credit performance on the credit vertical. We saw an outflow of close to $350 million in the quarter. To us, this was a little surprising. We would imagine that this would be a fourth quarter that would perform better under the environment we are. But when we add up hearing inflows and outflows, we actually had a net outflow in the quarter. So the question is just to explain a little bit what happened if this is recurring or not, and what was the driver behind this outflow? Thank you.
Alex Saigh, CEO
On the numbers specifically, do you want to respond to that, Marco on the withdraw I can, and then I can talk more generally about it.
Marco D'Ippolito, CFO
Yes, absolutely. So what we see specifically on page you, our presentation is a year-to-date inflows of $392 million, and outflows of $497 million. Let's remember that on the outflows, you have to add to that also the divestment and the dividend payment. So, this is not only no reduction of AUM resulting from withdrawals. What we see here, what I can mention about the credit business specifically in Chile that has been centered over is related to the local investors. We've also seen strong demand from new funds. So we've seen some investors moving around from one fund to another and that is very well explained on the line of inflow here today. You see that we have about $2.2 billion of inflows in AUM over the year, and that indicates the capacity of the platform to leverage on the fundraising of this vertical.
Josh Wood, Head of Shareholder Relations
Yeah. And I would just—this is Josh—just add of the $345 million outflows in the quarter, to Marco's point about dividends being included in that, about $61 million of that was dividends just to put a number to it for you.
Alex Saigh, CEO
Yeah, I think my point was exactly that I think investors do shift sometimes from one strategy to another. So we had a very, in my view, positive cash being invested into the funds of $2.2 billion—that's a very strong number. Sometimes you see investors coming out of one fund and joining another fund because they see a better moment that they like specific strategy or sub-strategy of the credit product in general. So they probably saw already what happened with the dollar-denominated securities in LA. Now they see the pickup of interest rates in local Chile, and they want to shift to a local Chilean credit funds. But I think you have to look at the broader picture, when you add all of these numbers. There’s a very positive net inflow of cash into the Mon funds. So again, be careful not to pick up, I think, one strategy specifically, and if you have the money moving to other strategies, but the net general inflows were positive for the quarter in the semester. Thank you.
Operator, Operator
Our next question comes from William Barnard. Your line is open.
Unidentified Analyst, Analyst
Thanks for hosting the call. My question is a follow-up actually to Craig's question regarding demand in the current environment. So among your range of products, which ones do you see a higher demand for now? Is it mostly the infrastructure products, as you said before? And then more broadly, how do you see the evolution of your total AUM for the next quarters? Thank you.
Alex Saigh, CEO
Yeah, I think more in general now for inflation-protected and credit products are more in vogue. In general, however, I think that things are shifting over the last quarter to equities as people are beginning to realize that we might have hit the bottom as far as public equities valuations are concerned. But yes, if you look into our menu of products, I think we continue raising and continue to be positive about our private equity now for our seventh growth equity fund. We are having a first close as we speak in the month of August, late August to early September. It continues to show very positive signs that we will hit, now the numbers that I mentioned answering Craig's question of the $3.5 billion cover for private equity fund seven. We raised $200 million and we know we should have a first close, which is already around 40% of that, which is a strong case for our growth fund as we speak. So that on the equity side, on the infrastructure side, even more so we're getting reverse inquiries. When are we going to know, come back to the market? And again, we were thinking about raising or beginning to raise infrastructure fund five, which is one of our flagship funds in September of 2023. We're looking to have a first close within 2022, late 2022. So it's like kind of a year in advance because inflation hedge products, the infrastructure ones are now really in demand by investors. And with our major investors—those that support us in our infrastructure efforts—we talk to them and again, why don't we then do a first close as of this year also on the credit side? I mentioned infrastructure credit is also gaining a lot of momentum. We didn't add to the numbers because the sub docs are not signed yet, but we have two important anchor commitments for this fund—a local public institution for a hundred million dollars. It's already on its website, but the sub docs are not signed, and an international public institution of $150 million. So that's already $250 million for this fund. We want to raise approximately $800 to a billion dollars for the fund, and having two anchor investors already—that's over 25% of the fund—is very, very positive. So that's for credit also on the Mon credit products in general. So when you look at all of the Mon credit products, there is a lot of money coming in because of the situation that I just explained. We had this target that we established for ourselves all the way back in the IPO early 21 to raise around $4 billion organically this year in 2022. And when we started this target, it was late 2020 because we did go public in very early January of 21. So late 2020, we said, look, this is our three-year plan. We planned to raise organically $4 billion in 2022, and we planned to do acquisitions like the VBI acquisition, which adds a billion. We didn't have a specific number for acquisitions but we said we were going to acquire in 2022 as well. And being able to have already in the first semester $2.3 billion raised, we feel confident we’re going to reach the target of $4 billion for the year because we are over 50% at the halfway mark. And I see the year continuing to go very strongly plus the anticipation of Infrastructure Fund V, our flagship infrastructure fund having a first close late this year makes me feel extremely happy and confident. So many things happened and many moving parts. From late 2020, when we defined this, to being able to hit our targets in ‘22 with all of these moving parts and the war in Ukraine and higher interest rates. So look, we will not only hit but exceed our targets for the $4 billion organic fundraising for 2022, again, established in late 2020. I'm very happy about, and just remembering that we started the year with $19 billion of fee-earning AUM. So $4 billion is a 20% increase in fee-earning AUM for the year, plus the acquisitions we’ll know for $1 billion right now can be $5 billion, which is a 25% increase in fee-paying AUM. So very, very strong. Plus we have synergies, you can see that our fee margins have been growing even after the acquisitions of integrating Moneda. Our fee-earning AUM has increased and shows that we are continuing to generate synergies from scale. So all of that makes me pretty comfortable. Of course, you might have, we have so many products, one product here, one product there, but in the overall scheme of things, I feel very comfortable with fundraising for 2022. Thank you.
Operator, Operator
Thank you. Our next question comes from Tito Labarta of Goldman Sachs. Your line is open.
Tito Labarta, Analyst
For taking my question. My question is around net financial results, which were a negative $0.8 million this quarter especially comparing to last quarter. One was positive $4.8 million. You mentioned during the call that this was related to unrealized impact from currency and in the balance sheet, but could you give us a little bit more color around why that is? And is there any, anything else that impacts this line? And a second question, if I may is a more broader one around divestments and equity exit strategies. What are you thinking in terms of divestments for the year do you think that the macro environment and Latin America impacts divestments at all? If you could talk a little bit about that, that would be great. Thank you.
Alex Saigh, CEO
Hi. Yeah, I'm sorry, Marco. That's why I was going to say, I was just going to say hi Tito, and I think Marco, if you want to answer the first part of the question, I'll take the second. Thank you.
Marco D'Ippolito, CFO
Sure. Hi. So when you look at the net financial income, what you're going to see there is unrealized results from our investments to clear attention to our presentation on page 22, you see the, the, there's a line of investment that is about $24 million for the, the number is basically a function of the currency impact over our investments, and also the valuation impact on our investments. What are these investments? These are mostly GP commitments and the minority stake in our recent acquisitions. So we had a very small number at the time of the IPO, and it's not meant to be very significant into our financials.
Alex Saigh, CEO
I can talk about investments and we're pretty fast with the divestments. We have been in line with many of our companies, and portfolio companies are actually for sale. We did sell a couple of them already during the quarter from our infrastructure efforts and our private efforts. And we have been receiving non-binding offers at valuations that we expected. Now we are receiving binding offers that valuation that we expected, even with a slightly notch up here with where we expected our marks. So everything is going in my view as planned. I think during the second half of the year, I think we will continue to be able to deliver on that. And that actually is the main driver to push performance fees, and the way that we see it. I think private equity fund five continues to do well on that front, on the divestment front, moving our DPI or disabled paid-in capital to get into the performance fee zone. And I think we see the same thing for infrastructure fund three, which again to our surprise, we're not expecting to get into the performance fee zone this year. We were expecting more to get into the performance fee zone in 2023 and 2024, but because of some investments that we are pursuing in our infrastructure fund three, we see that we are moving in that direction. I don't see actually generating a performance fee from infrastructure fund three this year. There's a chance that we can, but we were not expecting that. So we were expecting in 2023-2024, but we are anticipating some of those investments. And again, the non-binding offers are now binding offers in line with our expectations with a slight notch up from what we expected. What we see here, I think is a question of having the good assets in the portfolio. We are selling leaders in logistics distribution; we are selling a leader in agricultural inputs distribution, and those are sectors very sought after by investors. Also, we are looking to sell some of our healthcare-related assets; frozen logistics, agricultural inputs distribution, healthcare-related assets are very well sought by investors. So that being in the right sector with the right asset is the reason we are getting the strong bids from all of them from strategic investors.
Operator, Operator
Thank you. I'm showing no further questions at this time. I'll turn the call back over to Alex Saigh, CEO for any closing remarks.
Alex Saigh, CEO
All right. Thank you very much for your patience and thanks for participating in our second quarter, that 2022 earnings call again. In our view, very, very positive. We are now very much in line to deliver the guidance for fee-related earnings, 50% growth versus last year. We are in line to deliver our $4 billion organic growth in fundraising. We also, in line with what we expect to do in inorganic growth in M&A—with the acquisition of VBI already public and announced and looking at a good pipeline for acquisitions in the second half of the year. In addition, I see that we are entering into a good divestment cycle and base, I think with everything that I just mentioned here answering questions—all very positive about that as well—that actually then pushes us to the performance fee zone, generating performance fee-related earnings. So fee-related earnings are right on track to hit the 50% growth, with good chances on the performance fee-related earnings. If we do these investments, we move into the performance fee zone. Of course, as you guys know it might slip a month here or a quarter there, but the general direction and the prices and valuations that we are getting from non-binding and binding processes are pretty much in line with what we expect with a notch up. And if we move in that direction, we get into performance fee zone. Even though, again, it might step a quarter here, but the direction is the right direction. We didn't get any negative impact on our valuations or processes that we are divesting. So that actually then pushes us to a very strong distributable earnings growth for the year. Hopefully now, again, as we move into 2022, we'll give you more good news on that front. I'm already looking into—given that our business is so predictable—looking also already into 2023. So thank you very much for participating and I hope to see you guys in person over the next couple of months in different meetings and conferences. And with that, I'll close the call here, if there's no other further comments from Marco or Josh. Thank you.
Operator, Operator
Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.