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

Thank you. Good morning, everyone, and welcome to Patria's first quarter 2021 earnings call. Joining on the call today are our Chief Executive Officer, Alex Saigh; and our Chief Financial Officer, Marco D'Ippolito. Earlier this morning, we issued a press release and earnings presentation detailing our first quarter 2021 results, which you can find posted on our Investor Relations website at ir.patria.com or on Form 6-K filed with the Securities and Exchange Commission. Any forward-looking statements made on this call are uncertain, do not guarantee future performance and undue reliance should not be placed on them. Patria assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve inherent risks, including those discussed in the Risk Factors section of our Form 20-F Annual Report filed last month. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards or IFRS as opposed to U.S. GAAP. Additionally, we will report in refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable measures calculated in accordance with IFRS are included in our earnings presentation. As a quick overview of the results, Patria has generated $13.1 million in IFRS net income in Q1 2021. On key non-GAAP measures for the first quarter, fee-related earnings were $17.3 million and distributable earnings were $17 million, or $0.125 per share. In alignment with our policy, we declared a dividend of $0.106 per share payable on June 16 to shareholders of record as of June 2. With that, I'll now turn the call over to our Chief Executive Officer, Alex Saigh. Alex?

Thank you, Josh. Good morning, everyone, and thank you for joining us today. We are very pleased with our first quarter results, which reflect solid execution across our investment platform. We are not only on track, but also leveraging current opportunities to deploy and commit larger amounts of capital into new investments, which accelerates our progress on key growth drivers for the firm. Our portfolio companies are performing very well, demonstrating the resilience of our investment approach and our ability to deliver outstanding returns to our LPs through many different environments. In private equity, we are delivering 750 basis points of outperformance relatively to the emerging markets benchmark, and our portfolio companies have capitalized on recent opportunities from consolidation completing a total of 34 M&A transactions in 2020, for example. In infrastructure, our investment opportunity is vast and we have mapped about $80 billion in long-term development needs across Latin America, especially in Brazil, Chile, Colombia and Peru. We are seeing record levels of government concessions and Patria is well positioned to be a selective bidder and win projects with very attractive return profiles. Now, clearly, the entire world is emerging from a health and economic crisis, and Latin America is emerging along with it. The latest pandemic data shows encouraging trends suggesting that we may have turned a significant corner with new cases and deaths both receding significantly from their highs in late April. There has also been substantial progress in the immunization programs with over 110 million vaccines given in the region. There is no question the second wave and recent environment has been difficult for society and many businesses. And regional macro concerns have clearly weighted on Patria's shares in the last few months, alongside other companies with exposure to the region. While we cannot control these…

Thank you, Alex, and good morning. Financial performance was solid for the first quarter and very much in line with our expectation and our key business drivers are all progressing nicely. Fee-related earnings of $17.3 million in Q1'21 were up 14% from $15.2 million in Q1'20, driven by a 20% increase in total fee revenues. Management fee of $31.3 million in Q1'21 were up 31% compared to Q1'20 largely driven by fee earnings AUM inflow from Private Equity Fund VI and Infrastructure Fund IV. Personal expenses of $10.3 million were up from $7 million mostly due to the shift in compensation structure, post IPO. FRE margin was 57% from the first quarter, reflecting very strong profitability. Patria's FRE margin is among the highest in our broader peer group and exceeds the margins of global managers many time our size on an AUM basis. Fee earnings AUM for the Q1'21 rose to more than $8 billion, up 4% from the last quarter and 14% from one year ago. Keep in mind that our reported fee earnings AUM reflects the basis that it's generating management fee in the current quarter. Since our flagship funds call for management fees semi-annually at the beginning and middle of the year, the increase in fee earnings AUM from Q4 to Q1, for example, is mostly attributable to capital deployed or reserved in the second half of 2020. There is now $2.8 billion of pending fee earnings AUM, which is not yet generating management fees as of the first quarter and will drive top line growth over the next several quarters. In our earnings presentation, we have added some additional details to show you that approximately $500 million has already been committed in the first quarter, mostly from Private Equity Fund VI, which will flow into fee…

[Operator Instructions] Our first question comes from Craig Siegenthaler with Credit Suisse. Your line is open.

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

Yes. Hi Greg, this is Alex here. Thanks for your question. Yes, I think we -- on the 41%, we have two-thirds of that already not only committed, but deployed. We have on -- in the beginning of the Fund, we did take advantage of the COVID, where listed stock prices did suffer and we did deploy capital buying the shares of two listed companies: one is a gas distribution network gas stations and the other one is a health club - a healthcare chain. So with that, they were not only committed but deployed. Then we did commit capital to a healthcare initiative in Latin America starting in Colombia. It's an integrated healthcare company starting with HMOs, healthcare management organizations in Colombia. There, we committed a substantial amount of money, but we deployed a part of that. And we also then committed to other thesis along this second quarter, one into a thesis in the fast-moving consumer goods distribution business and the other thesis in the cyber-security business. With that, yes, we are then beefing our commitments. By the third quarter, we should have -- by the end of actually this quarter, the second quarter, surpass the 75% threshold, which enables us to market and actually have a first close of our next fund private equity Fund VII and we should have around 40% of the fund deployed. By the end of the year, that 40% will go to be closer to 50%, 60% deployed. I hope I answered your question there.

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

Well, thanks for the question, again, I think very good question. I think we have to take a look first of all on the magnitude of things, right? I think we -- to be honest, 2% interest rate in Brazil was way too low. We do have some inflation in the country and of course during the COVID months, the months that were affected by COVID of course not. But now things coming back, economies rebounding, we do have some inflation, which is good actually for the economy, and central governments not only Brazil are putting up interest rates to cope with that. But we're talking about now inflation being, if you extract from the inflation number basically in Brazil, the commodity prices increase, but they did increase significantly over the last month. Inflation is basically on target. We have an inflation targeting system in Brazil and the midpoint of that is 4%. So we see that ex-commodity prices, we see that it's pretty much in control. And the Central Bank in Brazil and other countries in Latin America are seeing the same thing, commodity prices pushing up inflation numbers. When you extract the commodity prices increase, the other items that compose inflation numbers indices are pretty much behaved. But nevertheless, of course, inflation versus last year that had no inflation because of the crisis. So the hike up in interest rates is actually, in our view, positive given the magnitude that we're talking about. We see in Brazil 5% to 6% by year-end, we are now at 3.5%. And that also helps to be honest, Greg, to - for us to pass on to prices inflation on our costs. On the private equity side, we do invest in very resilient and inelastic in nature businesses -- industries and businesses…

Thank you, Alex.

Yes.

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

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

Thank you very much, Dean, and thanks for participating in our call. This is Alex again here. Our performance fees for 2021 is basically composed by or derived from two funds, Private Equity Fund III and Private Equity Fund V as you know. On Private Equity Fund III, our main asset there, which is 90% of the remaining net asset value or the NAV of the fund is one listed company which is an imaging diagnostics company. They had called Alliar, you can check that, if you want to, it is a listed company in the Brazilian Stock Exchange B3 and it had a great quarter, it had a great first quarter of 2021 and the results actually did please investors as the stock went up by 25% versus how the stock closed by the end of 2020. So great performance there because this company it is an imaging diagnostic company, but it does -- it did negatively impact -- it got negatively impacted by COVID because the elective surgeries were canceled, with the rebound in the fourth quarter and the first quarter, you can see the results of the company coming back and you can see now the results are great and the stock prices were up. So, we were expecting to see that because, of course, we are a major shareholder of the company and we expect this company to actually continue performing extremely well this year, as we see the vaccination programs in the region, as mentioned, over 110 million people already vaccinated, it's a 500-and-something-million region -- people region, so 20%, and the vaccination programs on a daily basis speeding up. So, as that happens, we see actually then a good second and third quarter for that specific company. In addition to that, as I mentioned…

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

Yes, great question as well. I think we have to address that. As we see our share price right now around $15 per share, it is, disappointing, of course, approximately a 50% drop from the IPO price. We all wanted it to be of course the other way, right, but I think it's too early to make the call on a share buyback program as of today. We have so many amazing opportunities on the M&A front in addition to everything that I said on the FRE front and the PRE front, the performance fee earnings front, generating good distributable earnings. We see FRE now this year better than our expectations, we see our margins better than our expectations in the mid-50's. We see everything that I just mentioned on the performance fee side, so now deploying some of the capital we raised into these new ventures here. So it's now a great momentum for Patria Group. It will be a great momentum for the stock as you guys follow us and actually see us performing, as I just mentioned. So I think that the stock will be organic growth of what I just said, should reflect that sometime soon, hopefully. So, I would like to actually reserve as of now the capital that we raised in the primary issuance for the reasons that we raise it, which was primarily for acquisitions and we have so many interesting things that we are talking and we'll use signs that we are analyzing such great things again. But again, I'm always with -- very sensible to the share price. Now, of course, we own 60% of the company -- six zero as Brazilian shareholders and founder shares. So any uptick in that price is extremely, extremely positive for us and we'll keep a very open eye on, but as of today, I think it's too early to say, given now the momentum that we have for Patria on the organic side and given the great opportunities that we have on the M&A side. But I'm sensitive and I'll -- let's see what happens in the near future and we might come back to this subject, but not as of now. Thank you.

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

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

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

Hi Tito, this is Marco. Good morning. So related to your first question about net accrued performance fee, I made a comment on my initial remarks. The number -- hypothetical number, if you do not consider the FX of our net accrued performance fee would be at around 300, but that's just a hypothetical number. So the straight answer to your question is around $50 million. When you look quarter-over-quarter, you'll see the detail fund by fund. And when you see the number being basically NAD [ph], that's how much the NAV went up and match to how much the currency depreciated, that it's around 10% in the quarter. Relative to your second question, all the fundamentals and key drivers of the business continue to be very solid. So if anything, we've been able to deploy capital at the faster pace, that it's resulting in a -- on a view that our fundraising perspective for the flagship funds will accelerate. There is also the fact that the underlying portfolio performance has been very solid. I think in part of the fact that we have exposure to sectors that are performing quite well over the pandemic, namely agribusiness and logistics and service -- service-related factors, they are the ones that are receiving most of the cash that have been coming through the governments to help in the pandemic. And that of course gives us a good perspective in terms of the performance fee. So on the fee-related earnings side, we can expect an increasing amount of fee-paying AUM. I indicated in my presentation that during the first quarter we have deployed or reserved about $500 million, but this amount will flow into our fee earnings AUM only in the second half of the year because of the way we draw the line to charge our fee earnings AUM. That's a very positive news, and if you tie that to the information that last year we deployed $1.5 billion, it gives you an indication of how much more money we are deploying over this year, that will turn into revenues on the second half. I hopefully -- I hope I have answered your question.

Yes, maybe I can get the second part of the question here on the general macro view that you mentioned, I think, yes, for the first part, I think of your question, I think we are optimistic on the FRE front versus our expectations. Yes. from all the reasons that I think we covered here for the deployments and et cetera, and very disciplined control in expenses et cetera. And on the performance fee side, now I think all of the data points as of today are there. That's a major performance fee coming from our Private Equity Fund III, where the most important asset there is an imaging diagnostics company that the stock traded 25% up, and we also see the real strengthening. Now, as of today, be it BRL520, BRL530 versus BRL550, BRL560 [ph]; so as of now, May 20, I think now things are progressing in the right direction in order to realize that performance fee from Fund III and a good share of reais per share, and on Fund V, the companies are performing extremely well, and of course, it's also very important to say that the sector selection which is key in our view, in my view to do well in equities in the region in Latin America. In Fund V, it's amazing, we see not only the companies are doing well, but it starts with the sector selection, healthcare, agribusiness, logistics, all of these sectors were extremely benefited from COVID, on the contrarily, what are all negatively affected, they were positively affected. Now the HMO business that we have, which is a major asset in the Fund V was positively affected because now we continue to receiving the payments for our private payers. Now we just serve the private side of the market, we…

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

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

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

Hi Robert, this is Alex. Now, thanks for the question. I think it is the right time to consider it well and the secondary market, as you know, is very, very liquid, now huge funds were raised by several very important and players in that market and I think we have great assets, and I was mentioning Private Equity Fund V, and definitely we have been -- it's something that we will consider, it's something that we are considering. We were approached by several of these players, as they look into everything that I said, now, they look at the rebound in the region, they look at the strengthening of the currencies, because of the commodity prices increases and the effect of commodity prices do have in the economies of the region is beneficial, is positive. They also see the companies that we have in our Private Equity Fund V exposed to the right sectors, as I mentioned, healthcare and agribusiness, logistics, we have also in Fund V a last mile food logistics business and of course did very well and it continues to do very well as people stay more home and ordering more food and et cetera, from home. And yes, we were approached and we will definitely consider and we are considering, and some of these you know that GP-led transactions in this market have been increasing more over the years. I think it was -- don't take me for this data here, but I think last quarter I think we have more GP-led transactions than LP-led transactions in the secondary market. So yes, I think we were approached. We are considering, it looks good, I think we should pursue seriously in doing something for that and Fund V is a good candidate, given everything that I've said. Thank you.

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

Thanks, Rob.

[Operator Instructions] Our next question comes from Craig Siegenthaler with Credit Suisse. Your line is open.

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

Yes, hi. Thanks, Craig. The appetite is high. I think we see these economies -- these adjacent economies, as you call them, going through very interesting moments, different moments and each one of these economies but, yes diversifying some of the Brazil risk, or the currencies, or the nature of the economies, so the answer is yes. I think we're looking in to expand our product offering and expand our geographic footprint in the region. So we do, we are looking at the same time to expand the product offering for our Brazil-centric products to target the true Brazilians in BRL raising BRL investing BRL like the REITS, in the real estate investment trusts like the infrastructure investment trust that I mentioned, but also looking to expand throughout the region with other general partners that do manage other products or similar of ours, but in these countries that you mentioned. There are now great managers in the region, they're doing extremely well, and that would add, I think, extremely well to our portfolio; so the answer is yes. And I think it composes our portfolio is that diversifies country risk, diversifies currency risk. These economies by themselves they are not very correlated with other economies of the world, that's something that's helped -- now we always do show to our limited partners that investing in our funds that have exposure to the countries that you mentioned, Craig, the economies of the region here is not really correlated with the US economy or European economy. So it's a good add for them, they're buying returns with very little correlation. So that actually adds to their portfolio high sharp ratios which everybody looks for, right. So having Chile, having Colombia, having other countries in the portfolio adds to the whole theme of…

Thank you for that.

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

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

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

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