Good afternoon, and welcome to the Vinci Partners' Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call will be recorded. I would now like to turn the conference over to Anna Castro, Investor Relations Manager. Please go ahead, Anna.

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 in 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 Factors section of our 20-F. We will also refer to certain non-GAAP measures and find reconciliations in the release. Also note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any Vinci Partners fund. With that, I'll turn the call over to Alessandro.

Thank you, Anna. 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 of 2023. Adjusted distributable earnings totaling R$70 million or R$1.30 per share, an increase of 18% in our cash earnings per share year-over-year. Vinci announced a quarter dividend of $0.20 on the dollar per common share. Over the last 12 months, we have distributed $0.73 per share as dividends that at the current stock price level represent a dividend yield close to 8%. Our fee related earnings totaling R$51 million in the quarter, or $0.94 per share, represented an increase of 11% year-over-year on a per share basis, driven by the ongoing fundraising across our private market vehicles and a higher contribution from advisor fees this quarter. AUM reached R$65 billion at the end of the second quarter, up 9% year-over-year. This quarter we had an important contribution from AUM appreciation following the recovery in local markets, which pushed our public equities and REITs strategies to rise by 20% in average. This is one of the few quarters since our IPO that we benefit in a more significant manner from this effect. Since 2021, we have struggled to see a relevant impact from market appreciation as we face challenging local markets, and our AUM growth has been anchored mainly in new capital subscriptions and inflows. The strong results posted for AUM FRE and distributable earnings this quarter are once again a clear demonstration of the resilience of our platform. We have been discussing constantly in our calls, our current focus in fundraising across our private market strategies and the impact these new capital commitments will have for our management fees. I'm very confident in the prospects for future quarters as we…

Thank you, Alessandro, and good afternoon everyone. Starting on Slide 9, we will cover AUM trends for the second quarter. Vinci ended the quarter with R$65 billion in AUM, up 9% year-over-year driven by growth in our private market strategies over the last 12 months and appreciation markups across liquids and our REITs. Long-term AUM accounted for R$33 billion in the quarter, increasing 20% year-over-year, pushed by the appreciation in the REITs and our new capital commitments across private equity credits and now represents more than 50 of Vinci's total AUM. This quarter, our AUM was positively impacted by market appreciation. For the past two years, we added long-term commitments into our private strategies through organic and inorganic expansion, and this effect was partially offset by market depreciation across liquids. Now we have started to benefit from the early stages of what we believe will be a very positive outlook ahead of us. During our last earnings call, we talked about how the depreciation the REITs market affected us, and we anticipated that they should recover this quarter. At the end of the second quarter, our REITs have more than fully recovered. Looking across our REIT universe, some have surpassed the threshold where they become eligible for future capital raises. With that said, we expect to see follow-ons in our listed REITs in the second half of the year and even more next year. For the last two years, with rising and very high nominal interest rates in Brazil, primary issuance in the REITs was not possible. We bridged this period with creative, although lower volume share for assets swaps. The REIT vertical has been a meaningful contributor to our fundraising in the past through significant primary issuances, and we are very happy to be at an inflection point where…

Thank you, Bruno. Turning to our segment highlights. As you can see in slide 20, our platform remains highly diversified, which we believe to be the main contributor to the resilience of our business. Disregarding investments made in the VRS segment, 59% of our FRE over the year-to-date came from our Private Market Strategies, followed by IP&S and Liquidity Strategies with 16%, and Financial Advisory contributing with 8%. The same level of diversification is reflected in our segment distributable earnings. Moving on to each of the segments. Starting with our Private Markets Strategies on Slide 21. FRE totaled R$29.8 million hires in the quarter, up 23% year-over-year, driven by the strong fundraising cycle experienced over the last 12 months and the acquisition of Vinci SPS. Please note that as previously mentioned by Alessandro and Bruno, we should see new commitments coming from VCP IV and VICC over the next few quarters that will impact positively management fees, both from a recurring standpoint and a one-off basis due to retroactivity fees that new commitments trigger for the start of the fund. Segment Distributable Earnings were R$35.4 million in the quarter, an increase of 17% year-over-year, boosted by FRE growth. Total AUM was R$29.4 billion for the end of the quarter, up 22% year-over-year. Moving on to our IP&S business on Slide 22. FRE totaled R$7.8 million in the quarter, down 32% on a year-over-year basis. Even though our AOM numbers remain consistent year-over-year, we experienced a shift in the allocations with IP&S. The IP&S segment as in the last 12 months raised capital from exclusive separate mandates, which carry a lower fee rate, while suffering punctual redemptions in our open-ended products that are offered to individual investors through distributors and platforms. This shift in AUM mix impacted management fee revenues in…

Thank you. We'll now start the question-and-answer session. [Operator Instructions]. Our first question comes from William Barranjard from Itau BBA. Please, Mr. William, your microphone's open.

Good night everyone. Thank you for the opportunity and congratulations on the good quarter. So from our side, I have two questions. I'll start with the first one, and then I'll ask the second. So the first one is on liquid strategies and REITs. You showed good performance in AUM this quarter, but they're mainly from the appreciation of the AUM, right? So for REITs, you already told us that fundraising is already loaded, but I would like to grasp here what is the impact you send in nominal terms, if you could, in terms of inflow and fundraising. And I know for liquid strategies it's a little bit harder to predict, but if you could also give us a view on, that would be nice?

Okay, William, thank you so much. This is Bruno speaking. So as you said, I mean liquids is a little bit less predictable. We are -- obviously what we can do from our side is perform, right? So the good news is that our liquid funds on the equity sides and also the commingled funds that we have in IP&S. They are all in the higher rankings in terms of performance at this point. So we have both of our equity strategy in the first quartile and Commingled Funds in IP&S probably in the first, I would say decile or at least the first quartile, the numbers are very, very good at this point. With the first cut in interest rates, the impact was really immediate. So this quarter-to-date, now the third quarter-to-date, we already have positive flows for equities, which is something that hasn't happened in a structured and sustainable way for a very long time in IP&S with the performance that we have on the Commingled sides, we expect that to happen as well. So funds are very well positioned. And we are starting to see positive flows and obviously the outlook for those flows, as interest rates continue to come down and the expectation is that they will, we expect those flows to accelerate. In the REITs, it's an important part as well of the fundraising potential for Vinci and a part that to be very transparent, we have been missing very dearly in the past couple of years. Alessandro mentioned what we did in the prepared remarks, what we did in the last season cycle when we built the REIT platform and the last time that we have a little bit more positive environment was in the first half of '21 and we raised almost $2…

And William, this is Alessandro. Just to complement to Bruno's answer, just a brief comment. This fundraising for the REITs, they go straight to our waterline because this is really the management fees with no cost associated in terms of people and teams. So this is really a very immediate impact in our numbers.

That's very clear, Bruno and Alessandro. Thank you. Now, if I could ask a second one. This one on the FRE margin, it decreased a bit this quarter, I guess mainly due to a shift in the fundraising and fee mix in both IP&S and liquid strategies. Is it right? Is that right? And if so, could you elaborate more on that helping us understand here, what you expect ahead in terms of mix and margins on these strategies?

Okay, it's Bruno again. The reason why we had this shift in the margin in the second quarter was mainly given the fact that we had very strong advisory quarter in relation to the rest of the business. And then that creates a little bit of a shift from a bonus composition standpoint. So the bonus provision is a little bit higher when we have this type of mix in the revenue right. Going forward, it's very difficult to say when the advisory business is going to have a strong quarter like this one, but the mix will have some impact on the bonus provision side, right. The company, we underwent a productivity effort now in the beginning of the year that we were able to curb in some of the cost escalation that we had. So if you look at the corporate center costs on a year-on-year basis, we're basically flat. So it was a very good performance on that side of the business. And now with inflows accelerating, hopefully that's going to happen in the next few quarters, we expect to be able to show more material cost leverage, right. So the idea is really to be very focused on expanding margins going forward and as Alessandro said, the REITs are a good example, but this is true for most of our business lines. The structure that we have can absorb additional incremental AUM with very limited cost addition. So the expectation is that as we accelerate the fundraising, we'll be able to begin the gain in margins as well.

Thank you, Bruno.

Our next question comes from Ricardo Buchpiguel from BTG Pactual. Please Mr. Ricardo, your microphone is open.

Hi, I have two questions on my side. Looking at Q3 dynamics, given the better inflows that you already mentioned in terms of REITs and liquid strategies, the appreciation of the AUM for the full quarter and more private market closing especially with the retractive fees, it's reasonable to expect the expansion in FRE quarter-over-quarter and also related to FRE, we'll notice a strong increase in the advisory fee business recovering from the levels a little bit that it had in the prior quarters. So I want to understand a little bit if we should see advisory fees running with double-digit revenues in the following quarters, given all the capital markets improvement. And then I ask my second question. Thank you.

Okay, Ricardo. So going to your two questions, the impact on the management fee revenue for the third quarter, it can be relevant. So we have visibility today of at least R$1 billion between VCP and VICC that are being closed in the third quarter. I would say probably 60% to 70% of that would be related to VCP, and 30% to 40% of that related to the VICC. VCP's AUM are going to retract a full-year. So it can be a number north of R$10 million, let's say in terms of impact from those two effects, let's say. So those could have really a meaningful impact to the numbers in the quarter. In regards to advisory, quarter-to-quarter is very tough to forecast, right? So we tend to look at this more on at least a two or three quarter rolling basis, because the timing of closing of deals, it's very difficult to predict. What I can tell you is the following. Today our pipeline is over R$100 million in terms of the total pipeline for M&A. On the M&A side, the advisory business and usually we expect this to be realized in a period between three and four years. If the capital markets activity continues to improve, we can eventually pull forward some of these mandates and close them quicker. So that would obviously be a positive impact to our short-term numbers, but in average we are still seeing at least at this point in time, what we had guided to you guys in the past, which has been a number in terms of advisory, between R$30 million and R$40 million per year. So that continues to be the expectation for 2023, but without really being able to say how much of that will fall in the third quarter or in the fourth quarter. But we expect to do within that range of R$30 million to R$40 million on a normalized basis, right. So that would be expectation for a 12 month rolling basis with the level of backlog that we have today in that part of the business.

Very clear. And if I may have another follow-up, with the capital markets becoming more active, we have observed a lot of investment exits by private equity funds. So could you explain a little bit more how is the rules for the funds of Vinci to begin paying performance fees in private markets in particular if there is any catch up rules, any sort of particularity about this process? And also comment a little bit about the difference impact that we should have in terms of accounting and income and distributable earnings, given that your book and realized performance fees? Thank you.

Okay, so let's divide here between the liquids and IP&S side and the privates. Liquids and IP&S is what we discussed in the call, right. So we have a report, internal report. There is a watermark report that we track on a weekly basis, if I'm not mistaken, where we see the distance of our funds in general to their respective watermarks. And what I can tell you now is that we are at the money, right. So that means that any outperformance that we have for most of the strategies of the company, we are going to earn performance fees. This is a number that if you go back to 2018, 2019, 2020 we had R$40 million, R$50 million, R$60 million of performance revenues coming from the liquid side of the business, which again, as the case of the retail AUM in the past couple of years was very small, right. So we didn't have this contribution which given the levels that we have today in the market, they can be more meaningful going forward, right. In terms of the performance for the private side of the business, typically what we have is a structure where we pay carry on an European waterfall basis, right. So what that means is that we need to return to RLPs, their full capital with the opportunity cost, right. And then depending obviously on the index and on the currency. And in the case of the international capital, usually it's dollar plus eight preferred return. In the case of the Brazilian fundraising, it depends on the fund, but it's between 6% and 8% plus inflation. So once we return 100% of the capital plus the preferred return rate, we're eligible to start both accruing on the balance sheet and also receiving performance fees.…

Very clear. Thank you.

Our next question comes from Tito Labarta from Goldman Sachs. Please Mr. Tito, your microphone is open.

Hi, good evening, Alessandro, Bruno, Sergio, and Anna. Thanks for the call and taking my question. So I have just -- I guess follow-up on the FRE margin. Just want to make sure I understand the explanation there. Bruno, I think if I misunderstood or if I understood correctly, you said it was partly due to the increase in the advisory. But if I look at the FRE margin, because FRE margin for financial advisory, it was actually higher this quarter compared to 1Q. So, I mean, it looks like -- by strategies, the main decline for IP&S and private markets fell a little bit. I think you explained that IP&S was due to mix. But just to understand, I guess, the decline in the private markets FRE margin. And should that kind of go back to what we saw in 1Q, just to understand the quarterly dynamics here a little bit better?

Okay, Tito. No problem. So in private markets and IP&S, we had two impacts. One was that in the first quarter of '23, we had a closing VCP IV in which we retracted rates. So there was a one-time revenue management fee revenue that was booked in the first quarter and that we didn't have in the second quarter. So that's the bulk of the impact on the private market side when you compare quarter to the next, right? So and obviously with that, let's say the non-existing revenue impact in the first quarter -- sorry, in the second quarter when compared to the first, we have some cost de-leveraging. Obviously, the margin suffers a little bit? And then finally in the IP&S case we have basically an impact that was the following the second quarter of last year it was the peak exposure that we had in one of our patient plan funds [indiscernible] in which we ended that quarter with a number around R$3 billion of AUM in that products. That product has a very high fee for us. We are now in the worst possible moment in that comparison, because we had withdrawn of I would say a meaningful approximately half of that capital, a little bit more than half of that capital, because that fund is a fund that is an allocation funds. So it has a mix of equities and fixed income. And we had a very poor market performance in the second half of last year, so that impacted the performance of this funds. I mean, usually people they are very attached to short-term performances and we had withdrawals in this fund. So when you compare the year-over-year in the case of IP&S, although the AUM dropped single-digits, the revenue dropped more, because we…

Okay, great. Thanks for clarifying, Bruno, I think that's pretty clear. So you could have some retroactive fees again in 3Q, it sounds like. So that could boost a little bit there FRE margin for private markets and just on the IP&S. So is a more normalized margin for IP&S around this mid-40% range that we saw, I guess in 1Q and 2Q, not the 50% something that we saw last year?

Well, hopefully we can go back to that level. I think it will depend on the mix of products that we grow going forward. The positive thing is that the flow to the pension plans is going up. So given that those are carrying higher fees, the amount of fixed cost dilution that we can have there is very big. The team will not change. I think that's an important point. The IP&S team, if they manage R$20 billion or R$30 billion, it's going to be the same team. So there's going to be some bonus provision, which are running today, let's say at around 19% to 20%, and the rest is FRE. So to that extent, the leverage that we get there, it will be very directional with the amount of AUM and the fee rate that we have. So it could go back to -- depending on the revenue base, it could go back to the levels that we had last year.

And Tito here's, Alessandro, just to reinforce the Bruno's point, what has been happening the last year in IP&S that we have been suffering. We suffered. Now we are in the opposite direction, but we suffered some redemptions coming from these retirement and pension products where the final clients are retail. It's a retail decision. So and they carry higher fees, but at the same time they are more volatile. And we have been compensating that in terms of AUM with more institutional money that carries lower fees. Going forward we already seeing the flows from retail changing on a more positive tone, but we are of course, seeing faster inflows and requests from proposals, climbing from institutional investors. So we expect growth in AUM, but also from retail and pensions -- sorry, institutions. So we believe the institution will come first, but the retail is picking up too, that carries higher fees. So that will probably will be growing the margin and the average fee for the whole segment, but it's difficult to predict exactly how it occurs going forward.

Okay, great. That's very clear. Thanks, Alessandro and Bruno. And if I can ask the second question, more on the performance fees. Alessandro sounded like you sounded optimistic, but you could potentially realize more performance fees in the second half of the year, maybe towards the end the year. Did I read that correctly? Would that be more like towards the end of the year? And On the PRE margin? Typically it's around 65%. This quarter fell to 50. Just understand what the amount you paid from the performance fees was higher this quarter?

Okay. Yes. We expect to see more performance related earnings, especially on the fourth quarter of the year, okay. Since on the liquid strategies, we are -- as Bruno mentioned, at or over the high-watermark. So we are in the point that any I would say over return will be charging performance. Also, at the same time, on the private market, as we mentioned, a few funds are already paying as the infra fund already pay performance fees. And specifically, so be an effect that we expect for the fourth quarter, and specifically in terms of margins is because on this second quarter performance numbers, we benefit for performance from one specific strategy that we have inside liquids where we have a higher percentage of the performance fee that are distributed to the team. So that explain why specifically in this quarter, we had this effect of a lower margin in PRE.

Okay, not very clear. Thanks a lot, Alessandro.

Our next question comes from Yuri Fernandes from JPMorgan. Please Mr. Yuri, your microphone is open.

Hi guys, thank you very much. Most of my questions, they were already answered, but I have one regarding inflows, when we check the June data agreement, we see more inflows, I guess this quarter you have the figures and ex-IP&S I guess most of your strategies, they are performing well. So just an outlook here for the second half, if you are expecting like you already have July on your plate, right? So just checking how you're seeing flows for the second half, if we should see an acceleration on inflows and especially if we need to see a certain level of Selic for you to start to see things getting more material. So, just checking how you're seeing things. And the second question is if there is a Selic going to low double-digits, single-digits, that would be where you believe deceleration may gain more momentum? Thank you.

Hi, Yuri. This is Alessandro. Thank you for the question. Yes, we are seeing more inflows as we mentioned, especially on July and et cetera, there is a subsequent numbers that we already mentioned regarding the private market strategy, especially the private equity VCP IV with this XP and some others fundraising efforts that will be materialized in the third quarter and also VICC and that will continue over the rest of the second half where we really expect this to pick up. As we mentioned again, we saw a lot of interest and the numbers slowly being positive for equities and also for some IP&S strategies. So yes, we expect the inflows to improve already on the second half of the year. Okay, to your second question regarding a level, we believe that when we will have on the high single-digit Selic that will be really an environment that we expect a very strong growth in terms of AUM across all of our strategies. Because that will translate in real interest rates that will turn a lot of our products that now we are in a very good position since they are in the first quartile of their benchmarks of the peer groups. We could really take advantage of that position when the Selic rate is in a more normalized level. Of course, we'll see on the second half and next year already a good inflow, but when we see something under 10% or high single-digits, around 9% and 9.70%, really, we expect that to pick up strongly in all of our investment strategies.

Super clear. Thank you very much and congrats on the strong quarter.

The question-and-answer session is over. We'd like to hand the floor back to Mr. Alessandro Horta for company's final remarks. Please Mr. Horta, you may proceed.

So, I would like one more time to thank you for your support, your interest and say that we are becoming increasingly more optimistic with the next few quarters. The environment is much more benign. And we are seeing this improving going forward. And we are very, very well positioned to capture this opportunity right now, not just because of capabilities, our capacity, our deep knowledge of all the verticals, but also because the funds are with performance relative to the peers, really in a good shape. So we expect you in the next few quarters. So thank you very much and have a good night.

Vinci Partners conference is now closed. We thank you all for your participation and wish you a very good night.