Patria Investments Limited (PAX) Q3 2023 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Patria's Third Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today Josh Wood, Head of Shareholder Relations. Please go ahead.

Thank you. Good morning everyone and welcome to Patria's third quarter 2023 earnings call. Speaking today on the call are our Chief Executive Officer, Alex Saigh; our Chief Financial Officer, Ana Russo; and our Chief Corporate Development Officer, Marco D'Ippolito; and we are also joined by our Chief Economist, Luis Fernando Lopes for the Q&A session. This morning, we issued a press release and earnings presentation detailing our results for the quarter, which you can find posted on our Investor Relations website 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 a solicitation of an offer to purchase an interest in any Patria form. 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 are included in our earnings presentation. On headline metrics, Patria generated distributable earnings of $34.6 million or $0.234 per share for 3Q 2023, including fee-related earnings of $36 million. We declared a quarterly dividend of $0.199 per share payable on December 8th to shareholders of record as of November 22nd. With that, I'll now turn the call over to Alex.

Thank you, Josh and good day, everyone. It's great to be back with you after gathering just a few weeks ago to discuss an exciting platform acquisition for the firm. As we now look to Patria's progress in the third quarter, our message is simple. We delivered another strong set of results, and we continue to drive growth in a market environment where growth does not come easy. We are executing on our M&A goals aligned with our strategic pillars and leveraging the diversified platform with more than 30 products that we have built to capture areas of strength across the investment landscape. As of the end of Q3, total AUM and fee earning AUM were up 7% and 15%, respectively, from one year ago, but that's only part of the story. Through early November, we have now closed on nearly $4.9 billion in total capital formation in 2023, including organic inflows of $1.3 billion in the third quarter and an additional $480 million secured in early Q4, bringing our year-to-date organic inflows to nearly $3.7 billion. On the inorganic front, I'm happy to announce that we just closed on our new joint venture with Bancolombia last week on November 1st, which will add about $1.2 billion of additional AUM here in the fourth quarter to reach that $4.9 billion capital formation figure that I just mentioned. And of course, we just recently announced the agreement to acquire a private equity solutions platform from Aberdeen that manages another $9 billion of AUM, and we expect that to close in the first half of 2024. Between organic and inorganic activity, we have closed or signed $13.8 billion of new AUM for the platform this year. And pro forma for the close of pending M&A transactions, our total AUM and fee earning AUM would rise to approximately $38 billion and $31 billion, respectively, with permanent capital vehicles rising from 7% to approximately 13% of fee earning AUM. Indeed, despite the challenging environment for our industry, Patria continues to execute, and we do expect to reach our targets for 2023. We were very pleased to see fee-related earnings rise to $36 million in the third quarter, up more than 6% compared to the prior quarter and up 14% compared to the third quarter of 2022. This brings year-to-date FRE to $101 million, and we expect to reach our target of $150 million for the full year, with additional revenue uplift in the fourth quarter from fee activations in our newest funds as well as careful management of our expenses. On organic inflows, as we noted, we have secured about $3.7 billion year-to-date, and we still see the path to reach around the $5 billion mark by the end of the year based on the pipeline we see in these final two months. Although, getting final signatures and closings can always be a challenge at the end of the year. We continue to leverage the financial deepening to outperform on fundraising in Latin America as investors in developed markets continue to face challenges that delay new commitments to private markets. We expect around 60% of the current year's target to come from Latam investors, a much higher ratio than prior vintages. As we look forward, 2024 is, of course, a bridge to the 2025 targets that we shared at our Investor Day last year. And the timing of M&A closings and fundraising will have some impact on where we land in between. We expect to grow fee-related earnings to the vicinity of $170 million in 2024 on the way to our $200 million to $125 million target for 2025, and we'll be able to give better color as we get into the beginning of next year. Given the expected closings of the Aberdeen solutions platform transaction as well as a potential second tranche of the VVI transaction and potentially more in 2024, it is worth noting that the full annualized impact of this inorganic growth will only be fully felt in 2025. On fundraising, our business plan for 2024 are targeting a similar range to this year, $5 billion to $6 billion with some variance based on exactly where we finished for 2023. Given our progress on growth and significant additions to our platform through M&A, we also think it will make sense to provide an updated view on multiyear growth targets at some point via the end of next year, with an Investor Day event similar to what we hosted last year. As we step back to look at the macro environment, the story in Q3 and October has been a return to global volatility and caution driven by economic data, a higher for longer view on interest rate policy as well as new geopolitical conflicts. In the midst of all this, we continue to believe Latin America compares favorably as a destination for investment capital and particularly within emerging markets. Being first to raise interest rates in response to inflation, Latin American economies are now leading on the monetary easing end of the cycle with rates already falling in our key markets of Chile and Brazil. Regional economies are also the beneficiary of the recent performance of commodities being mostly net commodities exporters to the world. As we always highlight, Latin America's low geopolitical risk relative to the rest of the world and the favorable impact that has on terms of trade in a volatile backdrop. In this environment, it is also worth noting that while organic growth can be more challenging, it can be very advantageous time to pursue inorganic growth at attractive valuations. Patron has obviously been active on this front, and we continue to work on some interesting opportunities to expand the platform. Turning now to some color across our strategy verticals. In private equity, the current portfolio continues to perform well with Fund 5 and 6, both performing at a net IRR of 15% in US dollars. Our value creation initiatives drove organic EBITDA growth of 14% over the 12-month period ending August 2023 or 32% EBITDA growth over the same period when considering the impact of portfolio company acquisitions. In October, we also closed a transaction for Delly, which in total will deliver approximately BRL 2 billion or about USD 400 million of realization for Fund 5. With this and other recent distributions, this fund will reach a DPI of 0.4 times as we continue to return capital to investors. While the fund rating environment has remained particularly challenging across the industry, we are seeing conversations with LPs evolved in a positive way, and we have secured an extension of our fundraising period for the flagship fund until the end of 2024. With the portfolio of the fund now more defined around six investment thesis in high growth sectors, we believe this additional time will allow us to advance discussions with prospective LPs and bring the fund to a size between $2 billion and $2.5 billion. In infrastructure, we continued forward with fundraising for our latest flagship fund with more than $400 million raised in the quarter between the fund and coinvestment structures and an additional $300 million secured for the fund in early Q4. This is already a record fundraising year for infrastructure, and it's noteworthy that our anchor LPs in the first closing for Fund 5 have reupped to commit 25% more in aggregate compared to the prior vintage. Given the current momentum and pipeline, we believe this fund can reach $2.5 billion. We also began committing capital for this fund through investment projects. As in August, we announced winning a new toll road concession for a highway system in the South of Brazil. Together with our partners, the project will entail total investment of approximately $1.6 billion for improvements to nearly 500 kilometers of highway in the state of Parana. The project is one of many infrastructure concession opportunities expected from the government of Brazil over the next few years. Together with private opportunities, the relevant infrastructure pipeline over the next five to seven years is estimated at $90 billion, demonstrating the scale of the addressable market for our platform. As the new fund deploys capital, the existing portfolio continues to also perform well with Funds 3 and 4, both delivering 13% net IRRs in US dollars. Fund 3 is notably in the performance fee realization catch-up phase with $131 million of net accrued performance fees poised to be delivered for shareholders with incremental divestments. The credit strategy has continued to see quarterly improvement in inflows with a very healthy $200 million in the third quarter committed broadly across the product offering and an additional $60 million of inflows in early Q4. The flagship high yield fund continues to deliver attractive performance and top-tier rankings in line with its distinguished track record with an 8.5% gross return year-to-date, outperforming the benchmark by 400 basis points. We continue to expand our offering in private credit, including products tailored for local investors. In the Brazilian market, we have recently launched another strategy focused on direct lending to agriculture related companies. The real estate platform continues to scale, both organically within VBI and through partnerships like our joint venture with Bancolombia. You have heard us reference the significant consolidation opportunity that we see in Latin America real estate investment trust market, and we are executing on opportunities to build and scale local platforms in each of our target markets in the region. As of the end of Q3, the platform AUM has grown nearly 40% organically over the last 12 months. With the subsequent closing of the joint venture, Patria's reported AUM to reach $3 billion, up from less than $500 million prior to the transaction with VBI in mid-2022. The Bancolombia partnership brings the second largest real estate investment trust vehicle in the Colombian market at approximately $1.2 billion. Meanwhile, VBI continues to gain market share in the very fragmented Brazil market, where they are both raising new capital for existing strategies and also acquiring management rights to smaller vehicles, which can be merged and consolidated into the existing platform. The VBI performance has also been great in 2023 with NAV discounts on their real estate investment trusts, narrowing significantly from some -- with some funds even trading at a premium. In public equities, the strong pace of inflows in Q2 continued in Q3, with nearly $280 million in the quarter, driven by the regional small-cap and large-cap products. AUM is up 23% from one year ago, and that's due not just to the inflows, but also to great performance. Both the PAN, Latam and Chilean strategies are generating double-digit absolute return year-to-date in 2023. And the small-cap strategy has been notably impressive with an absolute return of more than 17% year-to-date, which outperformed the benchmark by 140 basis points. As a final point before I turn to Marco, I will reiterate a few highlights from our call a few weeks ago on the agreement to acquire the private equity solutions business from Aberdeen, which manages $9 billion of total AUM and nearly $8 billion of fee earning AUM and brings a very complementary client base. In addition to being a trusted partner for global and local investors to access alternative investments in Latin America, the third pillar of Patria's growth strategy addresses how we help Latam investors access global private. Allocations to alternatives in the region continue to evolve and grow more sophisticated. More than $38 billion of Latam pension capital already allocated to private markets products outside of Latin America. As this trend continues, we believe this will be an important avenue of growth and a critical angle of service to our clients. Upon the closing of this transaction in 2024, we plan to launch global private market solutions as a new strategy vertical, which will encompass this acquired platform as well as our existing $1.3 billion feeder fund business. Together, this vertical will offer clients diversified exposure to global private markets through private equity primaries, secondaries, and coinvestment strategies, as well as direct access to global private market products through our feeder partnerships. We are very pleased to welcome this new team of talented investors to Patria and excited for the value this platform can continue to deliver for both existing and new clients looking forward. I will now turn to Marco for some more details on this and other corporate development efforts. Marco, over to you. Marco D’Ippolito: Thank you, Alex and hello, everyone. It has indeed been a busy year on the corporate development front, and we're very excited with the way we've been able to use M&A to position our platform for future growth. I will give some additional color on both the Bancolombia JV as well as the global private market solution strategy that Alex just covered. Our new joint venture with Bancolombia was closed last week on November 1st, which begins a new chapter for Patria in the Colombian market. While Patria already had an investment presence in Colombia through our private equity and infrastructure business, this partnership gives us an instant major presence in real estate with $1.2 billion of fee earnings AUM, and most importantly, it aligns us with the premier distribution partner for the local investor base. Through this joint venture, our aspiration is to pair Patria's private equity expertise with Bancolombia's local presence to build locally focused alternative products and promote greater knowledge and allocations to this product over time. Real estate is a logical entry point, but we aim to build a local offering across our full suite of alternative strategies. As a reminder, on the mechanics and drivers of the initial platform, Patria will have 51% ownership of the joint venture, which will therefore be fully consolidated in our IFRS financials and reported on a proportional consolidation approach in our non-GAAP reporting for fee-related earnings and distributable earnings. To estimate initial annualized FRE contribution for this existing REIT platform, think about the $1.2 billion of fee earning AUM, earnings typically market fees of 80 to 100 basis points and the margin similar to Patria's current level, with each line item adjusted by our ownership percentage in the JV. Our most recent agreement to acquire the private equity solutions business of Aberdeen is an exciting step for Patria. The platform today manages $7.8 billion of fee earning AUM in private equity primaries, secondaries and coinvestments with a focus in the European and US middle market. The team brings a very impressive performance track record, delivering IRRs of 16% in primaries and 20% in both secondaries and coinvestments over the last 10 to 15 years. The capital is managed across drawdown funds, a listed private equity trust, which trades on the long stock exchange and separately managed accounts, which provide tailored solutions to individual major investors. With the exception of a small bucket of legacy mandates that are in a runoff stage, this platform is a combination of sticky long-term technical commitments and listed permanent capital, which delivers a steady stream of management fees. To review the high level impact there, the platform generates a management fee yield of 50 to 60 basis points on a current fee earnings AUM of $7.8 billion, with an FRE margin between 30% and 40%. Patria will only own performance fees on new funds raised together. And thus, timing for meaningful PRE contribution will be beyond our current outlook. We view this as a very attractive standalone business, which can be enhanced even further as part of Patria. With the uncertainty of the new platform's new home out of the way, we're very excited to begin fundraising together upon closing. In addition to serving and growing their existing client base concentrated in Europe, we believe we can also unlock distribution synergies as the Latin American investor base continues to grow its allocation to private markets outside of the region. I will now turn to Ana for more commentary on the results. Ana?

Thank you, Marco. Patria delivered distributor earnings of $34.6 million in the third quarter of 2023, up 17% from the third quarter of 2022, bringing us to $170 million year-to-date, which is up 25% from the prior year-to-date period. This equates to $0.79 of DE per share year-to-date and $1.16 over the last quarter quarters. For an investor who bought packs at the beginning of the year, before dividend payments of 2023 will total $0.98 per share and deliver a yield of more than 7% for the calendar year. Let's look at the composition of DE in the quarter. Total fee revenues were $61.6 million in Q3 2023, up 11% from Q3 2022 and $179.6 million year-to-date, up 8% from the prior year-to-date period, with the main drivers being the activation of fees for our latest vintage private equity fund and additions from M&A activity. Personnel and G&A expenses combined were $22.9 million in Q3 2023, which is roughly flat compared to last year. On a year-to-date basis, these two line items totaled $72.5 million, which is up about 7% from prior year-to-date period. The quarter-over-quarter reduction in personnel expense mostly reflects amounts shifted to a new executive bonus program to be the impact equity. We are expanding the equity compensation plan to further align the senior leadership team with shareholders, and more details on this will be forthcoming. The rise in G&A expenses is driven by the impact of acquisitions and inflation, partly offset by integration synergies. Fee-related earnings were $36 million in Q3 2023, up 14% from Q3 2022, with an FRE margin of 58%, which is up from 55 and 56 in Q1 and Q2, respectively. This brings us to $101 million of FRE year-to-date. And as Alex noted, we expect to deliver our $150 million target for the year. As we emphasized since the beginning of the year, we expected much of the FRE growth in 2023 to come in the back half of the year. And indeed, we anticipate significant additional uplift in the fourth quarter. We believe this will be achieved through additional fee activations in our infrastructure, private equity and growth equity funds, contribution from the recently joint venture with Bancolombia as well as careful management of our discretionary costs as we finish the year. We generated less than $1 million of performance related earnings this quarter, but have delivered $20.9 million year-to-date and nearly $40 million since our Investor Day last year when we noted a target of at least $180 million through 2025. Net accrued performance fees were relatively flat from last quarter at $469 million with some appreciation in the flagship drawdown funds, offset by currency impact. This continues to represent more than $3 per share of performance to inventory. As a final point, I would like to clarify how we are thinking about capital strategy looking forward as a firm, following our recent announcement of the acquisition of the private market solutions business from Aberdeen. Since the IPO, we commenced six platform transactions, which are all in different stages of execution. Across this deal structures, certain elements of consideration deferred payments, contingent payments have optionality to be paid in cash or equity. As part of our latest transaction with Aberdeen, we noted that we now have a credit facility in place to support short-term cash flow for both this and potentially other transactions as needed. We intend to use all three elements; balance sheet cash, equity and debt to strategically manage our growth plan over the coming years as we continue to deliver value to shareholders each quarter. I will now turn it back to Alex for closing remarks.

Thank you, Ana. As we close here, I want to take a moment to congratulate and recognize our senior managing partner, Otavio Castello Branco for his distinguished career with Patria as he prepares to step down from our Board of Directors by the end of this year. While this transaction has been planned and anticipated since our IPO back in 2021, when Otavio stepped back from his day-to-day operational leadership role, his guidance and wisdom of our Board through Patria's first few years as a public company has been very instrumental. Otavio was a driving force behind the inception of Patria's infrastructure business in 2006 and is pioneering views in that space contributed immensely to our growth into a regional leader over the last 17 years. While his strategic vision builds a key part of our platform, it is equally important to recognize his passion for developing people. His commitment to identifying and nurturing talent has shaped numerous careers. As he leaves a lasting legacy at Patria in the incredibly talented team that manages our infrastructure business today. Beyond professional achievements, Otavio embodies the personal qualities and values that define Patria's partnership. And we want to express our sincere gratitude for his contribution to Patria and wish him all the best as he embarks on his next chapter. Otavio seats on Patria's Board will be filled by Peter Estermann, a Patria partner who currently leads our portfolio management and value creation team. Peter brings over 40 years of professional experience and executive leadership roles across a range of industries in which Patria invests, including agribusiness, telecom and health services, making him an excellent choice to guide the company in this capacity. We likewise congratulate Peter on this new opportunity to guide pathway forward as a public company. As a final word to summarize the results, we continue to execute on our strategic pillars of growth, and I am very pleased with our performance and resilience and a challenging backdrop for our sector. We continue to build towards the targets we set for 2025, and I remain very confident in our ability to deliver for our shareholders. Thank you for your time on what we know is a busy earnings day, and we are now happy to take your questions.

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Craig Siegenthaler of Bank of America. Your line is now open.

Good morning, Alex, Marco. Hope everyone is doing well.

Hi. Craig. How are you? Everybody is here well and fine. Hope you and family well as well.

Great. So my first question is on fundraising. I think I heard a $2.5 billion target for private equity in the prepared remarks. Slide 17 still is $1.2 billion there. So maybe just a refresher on the timing and sizing of those raises. I also thought maybe you would look to spin out a growth capital sleeve. So is that separate from the $2.5 billion? Or is that inside of it? And then just a follow-up on fundraising. Infrastructure 5, I also heard some numbers thrown out, I think, $400 million raised in 3Q, $300 million in October. That one also isn't on slide 17 yet. So how much have you raised in total? And actually, has there been a first close yet for Infrastructure 5? Thank you.

Yes. Hi, Craig. Thank you. Thanks for your questions. On private equity fund 7, our target is between 2 billion to 2.5 billion for the funded for that for itself. In addition to that, as you mentioned, we also have the growth equity fund. And we started fundraising -- our fundraising efforts, we started offering the efforts late this year for our venture capital fund. Now we didn't want to raise no growth equity and venture at the same time. So as we are closing down on the fund rates early next year on growth equity, we're starting the marketing of our venture capital fund. So growth equity and venture capital are not in the $2 billion to $2.5 billion number, the $2 billion to $2.5 billion number is for private equity fund 7. We are -- as of now approximately $1.5 billion, and we should end the year between $1.5 billion, $1.6 billion and so the teams -- of course, it depends on getting the design documents that might slip from December to December, whatever, but we should get to, I think, $1.6 billion by the end of this year for private equity fund 7. We have the whole of next year to fund raise. I think we mentioned during the call that we extended the period until the end of next year to raise. So I need in my math here to raise another $400 million next year to reach the $2 billion or reach or $900 million to be the $2.5 billion. So do I see another $400 million on the low or beginning of the range fundraising for next year for private active fund 7, yes. The funnel leads to that kind of number. And in addition, as we already started investing the fund, I think it also helps on the fundraising because people can actually see what kind of investments are already in there. So it's a semi-blind fund because people already have a look on the kind of deals that they will get into. On infrastructure fund 5, we have, I think, up to now. There's no we're signing documents here or there. But up to now, we should be close to $1 billion as of now. And we should reach the end of the year with 1.2%. That's my guess. Again, subject to slipping there week here, getting signatures on sub docs and subscription documents from clients. 1.2 is kind of middle of the way of what we want to get, which is 2.5. I think now, it's the number can even be worth of 2.5. So I need to raise -- I have all the next year to be to raise this fund up to the end of 2024. So I need to raise another 1.2, 1.3 next year. And again, our funnel from our client leads the way to signing subscription documents show that we are pretty much in a right path to get there. So in addition to everything that I said, the divestments have been healthy on the infrastructure side. You know that we gave back over $2 billion of money to investors on a -- we manage a $5 billion asset class of -- we manage $5 billion in our infrastructure asset class. So we gave back $2 billion worth, which is now 40% of the AUM of the whole AUM of what we manage in the asset plans in the last 12 months. So a significant amount of money back to investors or DPI. On the private equity side, we are putting the gear on, the high gear on divestments. We just gave back the money from one divestment, which is a food retail business called Days [ph] plus another divestment that we did. So fund 5, we already gave back 0.4 times EPI. So that also helps on the fundraising. So these are, I think -- hopefully, I answered your questions there, Craig.

Alex, that was -- yeah, that was very comprehensive. I want to follow up on the realization backdrop. It's quite difficult in the US. Maybe in Latam, it's a little better. You've had some realizations already with Hidrovia, Entrevias, you had a SmartFit follow-on too. But maybe just an update on the realization front. I think you have a lot of businesses for sale, and you're probably mostly leading towards corporate exits versus IPOs?

Yes. I think on the whole, I think if you add the over $2 billion that we gave back for our infrastructure funds and then over $500 million for our private equity fund, that's now $2.5 billion. We manage $5 billion under the infrastructure vertical, as I mentioned. So it's very significant. It's 40% of that asset class, and we manage around $10 billion on the private equity side. We gave back this year $500 million, so that's already 5% back of the whole asset class, all of the funds, everything. So it's pretty significant as well. We are continue to drive divestments and our divestment agenda continues to be extremely full. So we -- as we look into the end of 2023 and 2024, we continue to drive divestments. As you know, infrastructure fund 3 is already in the catch-up phase. So whatever we divest from there, we get the performance fees, and that's probably going to be where the next performances are going to come from. Early this year, we had some performance fee coming from private equity fund 5, and we had some performance fees coming from infrastructure fund 3. And I see more performance fees in the short term coming from infrastructure fund 3, given the divestment agenda. Now, companies that we are selling from that portfolio will probably come first. Even though we're up to sign a deal, things might slip. As you know, I joked that mergers and acquisitions can also be called misery and anguish M&A, but we are there on the way to sell all these assets. And I think we -- if you look at what's -- the assets that we already have been working to sell over the next 12 to 18 months, it's probably going to be the same amount that I just mentioned, $2 billion, $2.5 billion of sales, which is quite significant and quite significant amount of businesses. Of course, everything might be slipping here or there. But we're definitely on a divestment mode. And why is that? Because we said -- I think the Latin America, as I think we briefly mentioned during the call, has been attracting foreign direct investments, record year for the region because of several reasons. The economies are a little ahead of the curve on the monetary easing. So Brazil, the Brazilian economy, the largest in the region, as you know, it's going to grow over 3% expectations that it's actually gross 3.3% this year. Late last year, the expectations was that the Brazilian economy was going to grow around 2%. And the growth expectation actually increased during the year. The Central Bank of Brazil started then reducing rates as inflation is somewhat under control. Inflation, as you know, we'll probably hit below 5% this year in Brazil and heading to around 4% next year, 3.54%, which is within the -- our Brazilian government inflation targeting system range. Same -- I can say the same story for Chile, which is the second largest exposure that we have today with Moneda. The one -- the central government there is already easing its monetary policy. No same exact story that I just mentioned for Brazil, a little less growth than the 3% and over 3% that I mentioned for Brazil, but a very positive story there as well. And that's why we had the inflows actually also for our public equity funds that I'll comment in a minute. But focusing in the answer to your question there. That foreign direct investments now with that -- this growth of the economy brings foreign direct investment. And as we sell most of our companies from our infrastructure vertical and private equity vertical to strategic players that for direct investment is very important, because it's the exits. We sold our data center business to a global data center called Aligned. We sold our toll road business to a global toll road operator on French based. And I can go on and on and mention other companies that we sold to strategic players that are willing to then come into the region and start their operations through the acquisition of one of our portfolio companies. So still very excited -- and I think because of everything that's going on geopolitically around the world, we never wish that we were in such this geopolitical situation as of now with several awards around the world. But given the situation, Latin America does actually stand out on that front as well, it's a safer supply chain place to be -- as a safer place on the geopolitical side. So I think that's an additional reason why we're getting that FDI up this year and probably will continue into the next year. Thank you, Craig.

Thank you. One moment for our next question. Our next question comes from the line of Ricardo Buchpiguel of BTG Pactual. Your line is now open. Please remember to unmute. Once again, our next question comes from the line of Ricardo Buchpiguel of BTG Pactual. If your line is muted, please unmute.

Hi. Good morning. I have two questions on my side. Can you hear me okay?

Yes, Ricardo, we can. This is Alex here. Thank you very much.

Great. So first of all, I believe you mentioned that you have now a far target for 2024 of $170 million. If you could comment in more detail what level of margin implying this guidance, will be helpful. And also, could you also get a little bit more on the environment for inflows related to the Moneda funds. And based on this level of sort in 2024, what you can expect for fundraising in the next year? Thank you.

Okay. Ricardo, thank you very much again for your questions. On the first question, I think we are very much aligned in delivering our PAX Day guidance. But to be honest, I'm very proud of the team that we managed to deliver. The guidance that we gave late last year and late last year, I think the conditions -- at least the vision that the market would be a little bit better in the second half of 2023 as they are today. So we set out the guidance of $150 million of FRE for this year, which I mentioned we expect to deliver. Then we mentioned $225 million of FRE in 2025. So the bridge between $150 million and $200 million and $225 million, $170 million. The exact middle would be $175 million. We're saying $170 million because some of the inorganic growth that we did, we did mostly later in 2023. So they're going to kick in later in 2024 as we close the deals. So that's why they're going to be just fully in our P&L 2025. So I was already confident on hitting those numbers. When, of course, I gave the guidelines in the end of 2022, $150 million of FRE this year, $100 million to $125 million FRE for 2025. Now I'm giving the guidance of $170 million, which is the middle of the way for 2024. And with the inorganic growth of Bancolombia, VBI, now the Aberdeen carve-outs, which we call the private markets solution business, I think the chances of hitting those numbers actually increased because we are already at $31 billion of fee paying AUM, we were expecting to be at $35 billion of fee paying AUM end of 2025, December of 2025. So I'll probably finish the year 10% off of the number that I was expecting end of 2025. So it's two years before. And as you know, revenues are driven by fee paying AUM. So the revenues for next year and for 2025 in this what I'm saying here that we are ahead of the curve. So the chances of us hitting those numbers increased with this inorganic growth. In addition, I also try to transmit the message here that we will hit the number of approximately $5 billion of organic fundraising for this year. And we are also giving the guideline that we will raise next year between $5 billion to $6 billion, answering the second part of your question. And that $5 billion to $6 billion organically for next year, $5 billion to $6 billion this year. We're going to hit close to $5 billion, $5 billion to $6 billion next year as a guidance. And it's between several funds, the ones that I mentioned when I was answering Craig's answer, which is private equity fund 7, infrastructure fund 5, private equity growth, private active venture capital, infrastructure credit, infrastructure, FIDC, the [indiscernible] that you know, the real estate investment trust, the FEEs, et cetera, for public equity that is doing very well. All of our public credit funds, the high-yield strategies, Latam, et cetera. So we have over 30 products. So when I see, again, the pipeline, the funnel between leads to subscription document line or investments in our funds. I can I'm comfortable to give out the guidance for next year of $5 billion to $6 billion of organic fundraising as well. So again, I'm happy to be able to be in this position today, which puts me in a more comfortable position to deliver the PAX Day guidance. And I hope I answered your questions. Sorry, on the margin side, Marco is reminding me that I forgot to answer the margin side. We finished -- as you know, this quarter, with a margin of 58%, FRE margin of 58%, up from 56%. We expect to be in the mid-50s next year. And why is that? Mid-50s, why does it drop a little bit because we are -- as we do these acquisitions, we take on businesses that have a lower margin and then we work on raising the margin again. So very interesting, if you follow our quarterly margins as of the IPO, first quarter of 2021, we came out with a little over 60% FRE margin than we did associate ourselves with Moneda. The margins dropped a little bit to 54%, 55%. We integrated the business with Moneda. The margin went up again to 56%, 57%. Then we integrated other business and went down a little bit, and now it's back to 58%. So I feel comfortable with our ability as a group of managers to integrate these businesses and a couple of quarters later, bring this this margin up again. But as 2024, we're going to be integrating big businesses, that's why we're giving the guidance of mid-50s margin because once we integrate the business margin comes down, but I am confident that as we look into the future, 2025, 2026, we will integrate this business as we have integrated Moneda and integrated the other acquisitions that we did and bring the margins back to 60%. I hope I answered your question.

Very clear. And if I may have another one. We saw that in Q3, there was like almost $600 million outflow in the infrastructure strategy impacting the fee AUM. So I want a more color about that would be helpful. Thank you.

Yes. Thanks for the question. I actually read your notes here, and I saw that you did mention that on your note as well. And thank you for asking it. The way that it works is the following, we did sign some infrastructure deals end of 2022, but we closed them in the second quarter of 2023, April of 2023. Once we close them, that's when we take the cost basis out of our AUM. And so you only saw in 20 -- in the third quarter, the reduction of that because that's when we actually had the close of this -- we charge fees on a semester basis, which is at the head of the semester. So January of 2023, these -- some of these infrastructure assets were already -- were still on the cost basis because we have not closed the deal -- we closed a deal in the second quarter, and then we removed it or subtracted from our cost base, and that's the $500 million that you see there. So it is completely related with the businesses that we sold. Remember that we gave back $2 billion worth of money to our infrastructure investors. The cost of those $2 billion is the $500 million that you're looking at right now in the third quarter number. So it has only to do -- it's a very positive sign because we are recycling the money. We are giving $2 billion back on a $500 million cost. So we're making a lot of money for our investors. Investors are happy. They commit to the next fund, the whole cycle, we have to keep this cycle moving the wheels turning. So it has nothing to do, but with a very healthy and natural cycle of our business that we then took off from the fee paying AUM of the infrastructure business, $500 million linked to the $2 billion that we gave back to investors, okay?

Very clear. And just to make sure, for Q4, do you have any major movements like that expected or not?

If we do sell businesses during the Q4, it will only hit -- you will only see the numbers affecting the first quarter of 24%. So if we do so business, sorry, in the Q4 2023, you will only see this number in the first quarter of 2024 when we then will announce to you in an earnings call late April, beginning of May. So for the Q4, there is no reduction of that sort.

Very clear. Thank you.

One moment for our next question. Our next question comes from the line of Pedro Leduc of Itau BBA. Your line is now open.

Thank you guys so much for the call and taking the question. Circling back to the FRE guidance for the full year, which implies about $50 million in the fourth quarter, has to do with certain funds that you guys are going to charge on. Should we expect this also to be a run rate for 2024, if you guys can comment a little bit on the FRE outlook for that year? And we enter with 50 and if there's more such revenue collections that you guys have visibility on, on top of the natural growth, that would be the first question. And the second, just something on the personnel expenses line that was a bit volatile this quarter. Just wondering if you guys have a little more color on it and also what to expect looking ahead. Thank you.

Hi. Hello. This is Ana. Thank you for your question. So I would address the first one. The FRE expected for the fourth quarter. As mentioned, the main drivers that we have for DP revenues is related to our private equity fund 7, also the -- our growth fund and also activation of our infrastructure 5. So this is all ads that the fourth quarter is also different from previous quarter because we also account for incentive realization for the incentive of the quarter. And that's why you also see a higher margin as well in this quarter. I think it's worth mentioning that the fourth quarter is also we have -- as we announced the closing of Bancolombia, we also have additional effort for the Bancolombia for the last two months. Okay. So in terms of cost as well as the fourth quarter, we are assuming that we continue to progress our manage -- very carefully manage our cost base, and this is not going to be different in the fourth quarter. So going to your second question related to personnel expenses. Also, as I mentioned, I have -- we have accounted for in this quarter for our implementation of our executive bonus program, and that is also accounted for the three quarters. It's kind of a year-to-date accounting -- accounted for, and that's the reason you cannot just think that this is going to be implied for every quarter that is an adjustment for this quarter, and this is the launch of this program. But in addition to that, we're also looking to our consolidation and our integration of our business that also impact our careful manage on the person. I think we answer your question.

Yeah. But what did you have before this executive program? And did it replace something? Or is it just come in addition of something else?

Well, we announced the program, this program in early 2021, we haven't implemented it. So it is an executive program that it's pretty immaterial, to be honest. It's whatever is -- on the whole is a very, very small number. But yes, just as a guidance, we gave out a program that voluntarily, partners can actually take a portion of their bonus. And actually, we will match with shares, we will give them a matching of shares. But it's -- we started with a very initial way of doing this very carefully. It's very immaterial. Again, it's not even relevant to the whole number here, it's less than 2%. But yes, it's important that we just mentioned that we started with this program that we had announced back in 2021, where we have ever executed it. So again, partners can get a portion of their bonus and actually commits to matching with shares given by Patria, and that -- those group of shares will be then held in escrow for five years. We're vesting in a third in the third year or third in the fourth year or third and the fifth year. So it's an alignment program to Patria that would like to have more of a longer term view of their compensation. But again, Pedro, coming back to the materiality, still very, very small.

Got it. Thank you.

One moment for our next question. Our next question comes from the line of Beatriz Abreu of Goldman Sachs. Your line is now open.

Hi, Alex, Marco and Ana. Thank you for the call and taking my question. My question is on the divestments breakdown that Alex mentioned, to sell over the next 12 months, $2 billion to $2.5 billion in divestments. Just wondering if you could give us a rough breakdown if that's over infra fund 3 or PE fund 5 and what would be necessary for PE fund 5 to enter the catch-up phase just for us to have sort of a rough estimate going forward. Thank you.

Yeah. It's -- this number encompasses assets that we're selling from all of our development infrastructure funds and all of our private active buyout funds and the growth fund and everything. So it encompasses all of the private equity and infrastructure drawdown funds. As you know, today, we have a couple of assets in our infrastructure 2. We have a couple of assets in our infrastructure 3 and several assets in infrastructure 4. And we are now raising infrastructure 5. We did one investment. And I could say the same about private equity. We still have assets in private equity 4. We're selling some of private equity 5, private equity 6, private equity 7, then we have growth equity. And then we have our venture capital funds. Now we have 3 venture capital funds. We are raising venture capital number four. So some all of the divestments of all of these funds, the $2.5 billion that I gave you over the next several months, to be honest. I think I was answering Craig's question is a very macro view top down, what are all of the efforts that you're getting now if I sum everything, that's the number. But I have no expectation of selling that in the short term. It is over the next 24 to 36 months, right, because it's a substantial number that I just gave out. On -- specifically to your question, infrastructure fund 3 is in the catch-up phase. So whatever we sell, we get the performance fee. On private equity fund 5, we did -- it's a $1.8 billion fund. We invested around $1.5 billion. We gave back, as I mentioned to you, 0.4 DPI, so 40% of $1.5 billion. So we still need 900 to $1 billion to go. If you do the math, 60% of $1.5 billion. $800 million to go. We have several assets in that fund that are worth that much. So we have two assets that it sold independently. I think they were worth that much, and we have then a third group of smaller assets that are also worth that much. So we have several options there, Beatriz, to reach to the other 0.6 DPI that is missing for us to hit one time DPI and then get to the catch-up phase. We are, of course, on the way of trying to sell these assets. It's within that big bucket of 2.5 that I mentioned to you. I think that, as I also mentioned here in this call, there's a -- if I do an expectation analysis, probability analysis, I think the assets from infrastructure fund 3 are more aligned to be sold. But again, mergers and acquisitions can actually play tricks on you. And one asset that you felt that was going slower, it speeds up the process and the other one that you thought that was going a little quicker, there's something that hits a bump and you take another couple of quarters to sell it. But if you -- if I had to put a probability, I would say that the infrastructure assets were more online to be sold in the very, very short term. In the midterm, this is basically it. I hope I answered your question.

Perfect. Very clear. Thank you, Alex.

Thank you.

Operator, Marco just reminded me here that we do guidance there, Beatriz, of $180 million of performance fee related. It up to now 40 something. So we have another $140 million to go. So things looked aligned. So over the next months, quarters, years all the way to the end of 2025, I think we are confident that we will hit the target. Thank you.

At this time, I'm showing no further questions. I would now like to turn it back to CEO, Alex Saigh, for closing remarks. End of Q&A:

Well, thank you very much for your patience. I know it's a busy earnings call day for everybody. So you're very kind to listen to close to an hour here on the Patria call. And finishing up, again, thank Otavio Castello Branco for his immense entrepreneurship and to put this company together with [indiscernible] and I and all the other partners. We're very happy with all the involvements here. And thank you very much again, and I hope to see you guys soon. I think we'll see each other in early December, I think in New York. We're trying to get together here, and I hope to see you there. Bye-bye. Thank you. Have a good day.

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