Earnings Call Transcript - VINP Q1 2024

Operator, Operator

Good afternoon, and welcome to the Vinci Partners First Quarter 2024 Earnings Conference Call. I would now like to turn the conference over to Ana Castro, Investor Relations Manager. Please go ahead, Ana.

Ana Castro, Investor Relations Manager

Thank you, and good afternoon, everyone. Joining today are Alessandro Horta, Chief Executive Officer; Bruno Zaremba, Private Equity Chairman and Head of Investor Relations; and Sergio Passos, Chief Financial Officer. Earlier today, we issued a press release, slide presentation and our financial statements for the quarter, which are available on our website at ir.vincipartners.com. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and outside of the firm's control and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factor section of our 20-F. We will also refer to certain non-GAAP measures, and you find reconciliations in the release. Also note nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any Vinci Partners fund. On results, Vinci generated fee-related earnings of BRL 53.6 million or BRL 1.01 per share, and adjusted distributable earnings of BRL 49.6 million or $0.93 per share for the first quarter 2024. We declared a quarterly dividend of $0.17 on the dollar per common share, payable on June 7 to shareholders of record as of May 23. With that, I'll turn the call over to Alessandro.

Alessandro Morgado Horta, CEO

Thank you, Ana. Good afternoon, and thank you all for joining our call. We are very pleased to join you today as we announce results for the first quarter 2024. I would like to start by highlighting the following: we posted another quarter with double-digit growth in fee-related earnings, pushed by strong fundraising across private markets products over the last 12 months in advisory fees in the first quarter. Vinci continues to deliver results despite challenging conditions where several asset managers in Brazil focused on single strategies have struggled to stay in business. We are truly proud of the platform that we have built over the last 15 years. I have no doubt that the combination between proprietary relationships across each funding base, a strong track record across different market cycles, and a broad product offering were key to achieving such results. Bruno and Sergio will go over specifics for the earnings results and fundraising pipeline in a few minutes. But I couldn't leave out of my remarks something that makes me personally quite proud. You might not have seen that Vinci was very active on M&A over the last few months. Let me cover what we expect from each transaction, as we look forward to accomplishing additional M&A as we get started. First, early March, we announced our combination with Compass, a leading asset manager and investment advisory firm in Latin America, with strong brand recognition, consistent performance, and more than $37 billion in AUM distributed across IP&S, credit, and public equities. We believe this transaction is a significant milestone in our history and a turning point for what Vinci could be in the next few years. We will leverage the complementary strengths of both firms and position Vinci as the premier gateway to alternative asset management in Latin America, creating a leading player with more than $50 billion in assets under management. The combination will also expand Vinci's geographic presence with offices in 8 different countries, including 7 in Latin America. Moreover, the transaction will enable Vinci to tap into Compass’ unmatched distribution platform with long-term relationships with more than 1,700 LPs across institutional and high-net-worth investors. We believe we have the tools to drive additional growth for the combined company from cross-selling and developing new products across both firms, becoming the ultimate one-stop shop in Latin America for alternative investments. Vinci will be able to offer local, regional, and global solutions to local, regional, and global clients. We are extremely excited about the prospects of this business combination and have already been looking to capture value since day one of signing. We are already working with a global consulting firm to support us throughout this integration journey. Our aim is to enhance value by aligning our structures and operations effectively. Our primary objectives include optimizing our corporate structure to seamlessly accommodate and integrate both entities in terms of strategies, locations, leadership, and more. Although we are still going through the process, progress has been promising, and notable culture and strategic alignment between executives from both firms is already evident. These early indicators are excellent, and we are eager to continue capitalizing on insights coming from this process once this transaction is closed. We have also started to identify short-term opportunities to fundraise for vintage products in countries across Latin America, such as private equity and public equities, and we are working with the Compass team on those initiatives. We have also held teachings from Compass Group to our distribution teams to leverage our distribution capabilities in Brazil with the objective of growing product availability to our local clients. Given the complementary mix of products and distribution geographies, there are plenty of short-term revenue synergy opportunities, which we are not waiting on the closing to attack. In terms of closing, we are working on the regulatory approvals and should be able to close between the third and fourth quarters. Compass should have significant contributions to our numbers starting in 2025. Moving forward, we announced just a few weeks ago the acquisition of MAV Capital, an alternative asset manager focusing on agricultural assets across private credit funds. MAV Capital is led by a highly seasoned team with more than 20 years of experience. The team manages roughly BRL 550 million in assets through 5 investment funds with lockups of up to 10 years. MAV's flagship strategy is focused on agribusiness and has 2 vintages between 2021 and 2023. By synergizing MAV's profound expertise with Vinci's distribution capabilities, we anticipate significant expansion in subsequent vintages. By bringing MAV into the fold, we are not just broadening our range of offerings, we are also deepening our roots in the agribusiness space. And why agribusiness? Brazil boasts numerous competitive advantages and holds a prominent position as a key global player. Locally, the agribusiness sector and related activities significantly contribute to the country's GDP. Moreover, the investment funds industry in Brazil has largely overlooked the sector, leaving it highly underserved. With that said, we perceive a substantial opportunity for growth in the coming years. By leveraging top-tier human capital, we are positioning Vinci to emerge as a front-runner in this segment. In concluding my remarks on M&A, allow me to outline what you can anticipate from Vinci in the coming years. Over the past years, we were focused on several opportunities in Brazil, spanning across all strategies with a keen eye for a transformative transaction in Latin America. The transaction with Compass stands as a significant milestone, positioning Vinci with a notable presence across Latin America in terms of both strategies, commercial presence, and office locations. This robust foundation is pivotal for the next phase of our M&A agenda. Now when we think about acquisitions in Latin America, we are focusing on a local-to-local basis. We are committed to actively exploring opportunities across multiple countries to complement and expand our strategies, with a newfound emphasis on small to mid-sized managers who were previously off our radar. Leveraging Compass' expertise and extensive network, we aim to expand our regional platform and add more critical mass in alternative asset management, continuing our presence in LATAM countries. Markets like Mexico and Chile present promising targets for extension and consolidation. With Mexico's projected growth trajectory in the coming years, we are dedicated to positioning Vinci favorably to capitalize on this prospective growth. In Brazil, our journey is far from over; investments such as the MAV Capital deal are instrumental in fortifying our foothold in what we perceive as a compelling market opportunity as we remain steadfast in our pursuit of such ventures. In conclusion, I would like to convey the following message: Despite the challenges posed by a turbulent global market, marked by uncertainties in interest rates impacting asset performance and fundraising opportunities across various strategies, we have demonstrated resilience in performing well across the board in this environment. We remain committed to enhancing our platform daily, focusing on providing our clients the best solutions. While we contend with short-term uncertainty stemming from interest rate cuts in the U.S., Brazil continues its trajectory towards achieving single-digit nominal rates by year-end 2024. Last week, Moody's released a report changing the outlook of Brazil's sovereign credit to positive. This optimism reflects Brazil's dedication to economic reforms, proactive responses to global challenges such as the COVID-19 pandemic, and improving macroeconomic fundamentals, including decreasing inflation and interest rates and a strong and growing trade balance. Historically, following a positive outlook, an upgrade typically follows within 6 months on average. Should this projection materialize, we would find ourselves one notch away from an investment-grade rating from Moody's, potentially serving as a pivotal catalyst for increased foreign investment in Brazil. At Vinci, we remain extremely committed to generating strong risk-adjusted returns for our clients and shareholders. We navigate these challenges in an uncertain market with caution and prudence, but fueled by enthusiasm for this forthcoming chapter in our history. With that, I would like to turn the call over to Bruno.

Bruno Sacchi Zaremba, Private Equity Chairman and Head of Investor Relations

Thank you, Alessandro, and good afternoon, everyone. I'll start by covering our fundraising efforts. Starting with IP&S, our Vinci strategic partner strategy or VSP, raised approximately BRL 500 million this quarter. Through VSP, we offer location services across the alternative asset space to investors, a trend we believe has great potential to grow as local institutions raise their allocation to alternatives. Currently, our IP&S business is mostly allocated to liquid assets. We are pleased to observe the growing traction of this strategy now in the alternative side and anticipate further opportunities in the future. Moving on, let me provide some color on our upcoming initiatives in private markets over the short term. This quarter, as predicted, we do not have relevant contributions for the private market funds as we had a few big closes at the end of 2023. However, we will continue to work across several fronts in the next few quarters. VCP 4 and VICC should both hold final closes this year. VCP 4 is set to see additional capital activated in AUM over the second quarter, while we continue to work on attracting additional local and international investors until the expected close of the fund in the second half of 2024. With one successful investment already under its belt and capital deployment gaining momentum, we anticipate announcing new acquisitions in the coming quarters, capitalizing on a very good environment to allocate capital with limited dry powder and competition for assets when compared to previous vintages. For VICC, we are experiencing good action with international investors and already have good visibility for the next commitments. We anticipate the fund reaching a BRL 2 billion target sometime in the second half of the year. Deployment activity for VICC has been very robust, evidenced by the signing of two transactions earlier in the year to develop greenfield assets focused on solar distributed generation across Bahia, Rio de Janeiro, and Sao Paulo. We have a diverse pipeline ready for execution in the coming quarters. And adding these two signed transactions with the approved investments by the IC of the fund, VICC has reached 40% of the fund already vested. It's interesting to mention that this quicker-than-expected deployment pace for VICC was met with a higher-than-anticipated level of returns for projects at IC approval. Therefore, we couldn't be happier with VICC's development so far. It's noteworthy that both funds feature retroactive fee clauses, meaning new commitments will retroactively apply fees from the fund's inception. This should contribute to management fees in the upcoming quarters as final commitments are secured. Now wrapping up our discussions on private market initiatives. In private credit, we've resumed fundraising for Vinci Credit Infra, the fund, which already secured BRL 1.4 billion in 2022 from two anchor institutional investors, holding significant promise for additional fundraising from additional capital pools. We anticipate attracting capital from both institutional and retail clients through our locators and distributors channel. With strong visibility for additional capital subscriptions in the second quarter, we're targeting an AUM of around BRL 2 billion for this fund by the end of 2024. Moving to Vinci SPS, we are in the final stages of structuring for the first closing of vintage IV slated for the upcoming months. Their first two vintages are fully allocated and have an impressive track record. Fund III has surpassed the 70% deployment threshold and is marked at a 41% gross IRR in U.S. dollars. This standout performance should catalyze raising capital for the fourth vintage. Today, Vinci SPS is the third vintage fund screening in the top tier of global opportunistic credit funds, which serves as a testimony of the exceptional work being done by Marcelo Mifano and the team. We should sign first commitments in June, supported by re-ups from previous vintages and local high-net-worth individuals. Adding to that, we expect commitments from international investors in the third quarter, where we should officially hold the first closing for the funds. This will be the first vintage raise with international capital for Vinci SPS. Our existing LP relationships are expressing strong interest in investing, and ongoing discussions with Ares indicate promising prospects for Vinci SPS. We will keep investors updated as we evolve through the fundraising. Moreover, in alignment with Alessandro's earlier remarks, our collaboration with the Compass team to integrate selected Vinci funds onto their platforms holds significant potential. We anticipate exciting opportunities emerging from this collaboration. We elected to start this effort with VCP IV, followed by VICC and Vinci SPS. An interesting tidbit of this initial effort was our ability to gauge the structuring work of the Compass team across a live deal. The level of access to regional organization and effort put out by the teams in Chile and Mexico has been amazing and really highlights what we can achieve as a combined entity in the future. Moving on to net inflows across our liquid funds in public equities and IP&S. Over the past quarters, we navigated considerable market volatility, which has impacted flows mainly in our IP&S vertical. However, as reiterated in recent communication, Vinci invests in maintaining robust relationships with our clients, which are proprietary and enduring. We have been consistently outperforming the rest of the asset management industry in Brazil in fundraising efforts amidst an environment where we see a number of competitors suffering from outflows. When facing more favorable market conditions, we anticipate a resurgence in capital raising for equities and IP&S. Our investment funds boast an impressive long-term track record, positioning us favorably for this anticipated uptick. For example, our flagship fund in public equities, Vinci Mosaico, has consistently outperformed its benchmark since inception, delivering a remarkable 541% return compared to the IBOVESPA Index 130%. In summary, armed with strong funds and a history of solid performance, we stand ready to capitalize on improving conditions and rigid inflows. To conclude my remarks, I wanted to cover in more detail our financial income and GP commitment returns. This quarter, we introduced a slide in the earnings presentation highlighting the company's GP commitments. You can find that in Slide 14 of our earnings presentation. As we have discussed in our Investor Day back in October, as capital is called against our GP commitment in closing funds, the liquid balance of our cash allocation will drop against an increase in GP commitment allocation. As of the first quarter, we have approximately BRL 1.1 billion committed to Vinci Partners funds as GP commitments, which will be called upon for capital deployment throughout their investment horizon. These funds are strategically allocated to investment offerings, yielding higher returns compared to the average portfolio returns of our liquid products. As this fund divests from assets and returns capital in the future, we anticipate significant contribution to our financials. Investment gains will be realized as GP investment income is subsequently reflected in our distributable earnings. In the short term, as cash from the liquid portfolio is transferred to GP commitments across funds, the realized return on this liquid portfolio will become unrealized return on the GP commitments, becoming realized once capital is returned to the balance sheet. If we realize the current portfolio at fair market value at this moment, we would have roughly BRL 12 million in realized income. That number is not meaningful yet as many of our closed-end fund commitments are still early in their investment periods, and public REITs have encountered market challenges in recent years. However, as this commitment season progresses, you can expect this figure to become increasingly meaningful each year. We wanted to highlight this potential as we do for our managerial accrued performance fees, as we believe it will be an important component of our future earnings potential. And with that, I will turn it over to Sergio to go through our results.

Sergio Passos Ribeiro, Chief Financial Officer

Thank you, Bruno. Before we delve into the financials, I'd like to address our recent managerial adjustments we have made. This quarter, we executed a strategic realignment across our segments. We are allocating BRL 2.3 billion in AUM from our hedge fund business to IP&S, while allocating the remainder BRL 534 million in AUM through our public equities division. The objective of this realignment was to form a dedicated public equities vertical while transferring open-ended macro commingled fund vehicles from the prior liquid strategies umbrella to IP&S. IP&S already has a dedicated strategy for managing macro-commingled funds. Thus, we are consolidating these funds that were previously under liquid states within IP&S, under the commingled strategy umbrella. Our pro forma numbers for past quarters and the last 2 months have been adjusted to reflect these managerial shifts. This adjustment underscores our commitment to transparency and ensuring precise financial reporting. Now let's start by covering management and advisory fees. Fee-related revenue totaled BRL 107 million in the quarter, up 6% on a year-over-year basis. Management fees were flat year-over-year, yet they exhibit a positive growth trend going forward when adjusted by retroactive fees that occurred in the fourth quarter. We continue to observe a mixed effect on revenues. Private market management fees posted another growth quarter, increasing 7% year-over-year. This is a direct result of the strong fundraising across private markets over the last 12 months. As mentioned by Bruno, the pipeline is stacked for private market products over the short to medium term, which should improve management fees. On top of that, VCP IV and VICC have retroactive fees clauses. Therefore, new capital commitments will charge fees from the start of the fund. For example, VCP IV start date is June 2022, meaning that new subscriptions will charge almost 2 years of management fees. These are nonrecurring effects that will contribute to revenue growth over the next 2 quarters. On the other hand, we encountered a negative impact on revenues stemming primarily from IP&S. In 2023, we suffered from outflows in our pension planning strategies, mostly from retail clients. These clients have investment portfolios where they have the flexibility to reallocate their assets between managers without triggering tax implications, which contributes to volatile inflows based on short-term performance. These funds carry a higher level of fees than the average fee for the segment, thus, affected by segments ROA when we look at each on a year-over-year basis. However, with nominal rates reaching single-digit figures and the outlook for future real rates stabilizing, we anticipate a shift in investor sentiment from outflows to inflows. This shift presents a significant opportunity for growth, especially given the favorable conditions in both private markets and liquid assets. Since our IPO, we have yet to witness all the pieces aligned at their full potential. We believe the convergence of a strong private market landscape with a conducive environment for liquid assets could prove to be transformative. Moving on, advisory fees had another strong quarter. Over the past 12 months, advisory fees amounted to BRL 46 million, representing a twofold increase compared to the first quarter of 2023. This significant growth underscores the remarkable momentum within our corporate advisory segment. Turning to FRE results, in the first quarter, FRE totaled BRL 54 million or BRL 1.01 per share, representing a 12% year-over-year increase on a per-share basis. Looking at the last 12 months figures, FRE reached BRL 213 million or BRL 3.96 per share, up 11% on a per-share basis. FRE continues to grow, supported by strong fundraising for private market products and a higher level of advisory fees. Considering our short-term FRE, we anticipate an upward trajectory. This projection is supported by several factors, including new commitments in private markets, the impact of retroactive fees, and the robust pipeline for advisory services. Now let me spend some time covering expenses. Margins have increased by 130 basis points on a year-over-year basis. However, we anticipate marginal movement in margin for 2024 compared to 2023, likely indicating further expansions. Looking ahead to 2025, with several products already fully raised and an improved economic landscape, we may experience traction in margins due to the high operating leverage of our platform. A closer examination reviews a controlled trajectory. Expenses have increased by 4% year-over-year. We consistently emphasize that cost control remains key across all market cycles, particularly in challenging environments. By exercising prudent cost management, we position ourselves to accelerate the growth of FRE during more favorable conditions. Shifting to performance results, performance fees remain at a relatively modest level. Bear in mind that most of our open-end funds charge performance fees semiannually in June and December. The first and third quarters usually tend to be weaker for performance fees. We have approximately BRL 17 billion in performance-eligible AUM across IP&S and public equities; when favorable conditions arise, this could become a relevant earnings stream. For private market funds, gross accrued performance fees reached close to BRL 300 million in the first quarter. However, it's important to note that most of these funds have not yet entered the carry season as they are still in their early stages of divesting from assets. Consequently, significant performance fees from these funds are not expected until late 2025 and beyond. As an illustrative exercise, if we were to realize this performance, we would potentially see closer to BRL 135 million in performance-related earnings, equating to approximately BRL 2.50 per share. It's crucial to acknowledge that these funds are still in their maturation phase and have yet to sell a significant portion of their assets, implying a potential for this figure to increase over time. To wrap up, I'd like to cover our distributable earnings. Adjusted distributable earnings totaled BRL 50 million in the first quarter of 2024 or $0.93 per share, down 15% year-over-year on a per-share basis due to the weaker performance of the liquid portfolio, which impacted financial results. The widening of the real interest rate curve throughout the quarter negatively affected our liquid portfolio as they invest mainly in fixed-income bonds. Over the last 12 months, adjusted distributable earnings totaled BRL 235 million or BRL 4.38 per share. In closing, I would like to reiterate that we anticipate a positive outlook for FRE over the upcoming quarters, which should consequently bolster our distributable earnings. The ongoing fundraising efforts for our private market segment are expected to be an important foundation for short-term growth. With that, I would like to close our remarks and open the call for questions. Once again, we would like to thank you for joining our call. Please, operator, you can proceed with the questions. Thank you.

Operator, Operator

We are now going to begin the question-and-answer session for investors and analysts. Our first question comes from Tito Labarta with Goldman Sachs.

Tito Labarta, Analyst

I had a question on your fee-related revenues. If you look at management fees, in particular, were down in the quarter, kind of flattish year-over-year. You mentioned here in the press release that private markets continue to do well, but you're facing some headwinds from IP&S. Just double-click on both of those a little bit. On the private market side, we did see the fees as a percentage of the AUM come down a little bit. What's driving that? And also just how do you see those headwinds in the IP&S? Do you think that continues? Could that be a headwind for the rest of the year? How dependent is it on rates coming down significantly, right? We saw only 25 bps yesterday. You need to see that come down a lot more to give us natural color...

Alessandro Morgado Horta, CEO

That's Alessandro. I will cover the part of IP&S of your question, then Bruno will go more on the other part related to the private markets fees, etc. Regarding IP&S, as you know, and we continue to have the movement that we saw in the last few quarters that follows overall, I would say trends in the Brazilian market, where the most liquid portion of our IP&S funds, we suffered some redemptions, basically people moving the money to other more short-term fixed income type of investments. We are seeing this movement reducing, so on a daily basis, we see this reduction being less and less to the point that we expect this to be neutral going forward. With the interest rates going down at a pace that now it's reaching close to single-digit nominal interest rates, we will see this movement, and we expect this capital to come back. But this is really more a consequence of this movement regarding interest rates at a high level and some of the flows, more retail flows redeemed from these type of funds go into more exempt type of fixed income instruments. So regarding IP&S, we do not anticipate strong movements ahead; on the opposite, we believe this movement is in the final stretch. And probably as soon as we see interest rates in single digits, even high single digits, we will see new money coming back to these types of investments and funds.

Bruno Sacchi Zaremba, Private Equity Chairman and Head of Investor Relations

Okay. This is Bruno. Talking about the revenue side. So, the first quarter of '23 and the fourth quarter of '23 both had a retroactive impact on the revenue base. So those are VCP and the VICC, right? So in the first quarter of '23, we had about BRL 2.5 million rise impact. In the fourth quarter of '23, we had about BRL 6.5 million rise impact. The first quarter of '24 was a clean quarter. So we didn't have any impact in terms of AUM being activated in those two funds. We are working with several investors regarding additional commitments for both strategies. As I mentioned in the prepared remarks, we expect to have, hopefully, VCP having more capital activated now in the second quarter, if not in the second quarter, certainly in the beginning of the third quarter. So either one or two quarters could have impacts coming from new capital being activated. But the main difference in the first quarter of '24 was that it was a clean quarter. So we didn't have any new commitments coming for the retroactive fee paying funds during the first few months of the year.

Tito Labarta, Analyst

Okay. Great. That's helpful, Bruno, and Alessandro. Just one follow-up, I guess, also on the fee-related revenues on the advisory fees. I mean we drew down in the quarter, but still very strong year-over-year. How do you think about those going forward? Is this a base that we can maybe consider? Or was there anything specific to the quarter that kept the fees relatively high?

Alessandro Morgado Horta, CEO

Yes, of course. So the pipeline for the advisory business is pretty good at this point. We had a very good first quarter, as you said. We're working on several transactions for the second and third quarters of this year. But again, it's very difficult to say when the transaction is going to close. I think for the year, we talked about a number between BRL 30 million and BRL 40 million for 2024. It seems at this point in time that we're going to hit that range. But it's difficult to say when exactly the revenue is going to fall. The first quarter was a little bit stronger. The second quarter depends on when the deals close. But I would say the outlook for the second and third quarters at this point, with the deal flow that we have in the pipeline, looks good. So we feel for the year, that BRL 30 million to BRL 40 million is a good range to work with in terms of advisory revenues for corporate revenues for '24.

Operator, Operator

Next question from Ricardo Buchpiguel with BTG Pactual.

Ricardo Buchpiguel, Analyst

I have two questions. First, can you please give us an update in terms of the key private market fundraising events that we could see in Q2? And if you could also comment on what we have been seeing so far in terms of inflows for liquid and IP&S strategies also would be helpful, particularly for Q2. And for my second question, if you could please explain what drove the unrealized investment income that you booked in the quarter. We saw there was like a deteriorating macro environment. You even had like a negative effect in our liquid portfolio. So, I wanted to understand the rationale for the unrealized portion.

Alessandro Morgado Horta, CEO

Okay, Ricardo. So, the first question regarding the pipeline for private market products in the second quarter. We have, as I mentioned in the prior question, we have been working with VCP and VICC for new commitments. We expect to see some additional capital coming in over the next couple of quarters. VCP has a chance that we might have commitments rolling in the second quarter. We're working on a few soft circle commitments to activate them in the second quarter. At this point in time, I would say probably the probability is around 75% that we have commitments in the second quarter; if not, it is going to move towards the third quarter. We expect to have, in the second quarter, the first subscription documents being signed for SPS IV. This will be focused on re-ups mainly from Funds 1, 2, and 3. We are targeting at least $500 million for SPS IV, so it will be a significant increase in terms of size. Remember that SPS as a whole, when we purchased SPS, the total AUM was BRL 400 million. So we're talking about the fourth fund being at least a bit higher than the total AUM that the platform carries today. The reception of that product in the market has been quite positive, so we are very excited about SPS IV. For the remainder of the year, we have additional commitments for VICC, which we expect to close until the end of the year. We have, as we mentioned, Vinci Credit Infra; we may have big tickets coming from that fund and some coming from a retail placement that we are working towards activating at some point in the next few months. We raised the first vintage residential development fund during the first quarter of the year that has already started to return capital and is doing very well. So, we expect to have a potential second installment of that fund in the second half of the year, probably with a few hundred million. We also have the second vintage of our industrial development fund slated potentially for the second half. So these would be, I would expect, the main products working on the private market side until the end of the year. We might also have VIR 5 coming this year, but it's still uncertain if we're going to be able to fit VIR 5 in 2024, because the fund is still a little bit below the threshold from an allocation standpoint to be able to come back. So, the second question, Ricardo, was on unrealized gains, right? So could you please rephrase the question? So I have exactly what you want to know.

Ricardo Buchpiguel, Analyst

Yes, my question was that you booked BRL 9 million in GP investment income in a moment where we saw a more challenging macro environment, right? We even had more negative performance from the liquid portion of the portfolio. So, I wanted to understand the rationale for booking BRL 9 million in these unrealized gains.

Sergio Passos Ribeiro, Chief Financial Officer

The unrealized gains are the effect of the mark-to-market of the funds, right? So, they depend on performance for the funds that we have allocated and committed from the balance sheet. There are a couple of portions there. One is mark-to-market on the liquid REITs. If I'm not mistaken, the first quarter was positive in that front. The second one is the mark-to-market of our closed-end funds. The closed-end funds are typically reevaluated once a year, usually at the end of the year, where we have the formal audit of the funds and reevaluate the shares of those closed-end funds. I would expect that impact to be more relevant at the end of 2024. So, we are going to have capital being called by VCP, we're going to have the revaluation of other closed-end funds. I think we had also some impact from our water and sewage fund recently. So those are the two components. One is the mark-to-market of the listed REITs on a quarter-to-quarter basis, and the second one is the mark-to-market of the closed-end funds that will likely occur at the end of the year when we do the audit for the funds.

Alessandro Morgado Horta, CEO

It's Alessandro. To be more specific, the largest contribution to this unrealized gain on the GP commitments came from some commitments in one of our infrastructure funds that were kept at par, and that was the first mark of the fund.

Operator, Operator

I would like to turn the floor back to Mr. Alessandro Horta for the closing remarks. Please, Mr. Horta, you can proceed.

Alessandro Morgado Horta, CEO

Thank you. I'd like to thank you all for your continued support and interest in Vinci. We continue to be very optimistic in delivering growth while providing stable results. We are highly dedicated to preparing for our integration with Compass, which will open a huge opportunity for us in the years ahead. So, with that, I would like to thank you again, and good night to all.

Operator, Operator

This does conclude today's presentation. We thank you all for your participation and wish you a very good evening.