Good afternoon, and welcome to the Vinci Partners Third Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer section, and instructions will follow at that time. 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 fund'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 you'll find the 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. On results, Vinci generated fee-related earnings of R$51.3 million or R$0.95 per share, and distributable earnings of R$51.8 million or R$0.96 per share for the third quarter 2023. We declared a quarterly dividend of $0.17 on the dollar per common share payable on December 7 to shareholders as of record as of November 22. 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 third quarter of 2023. In my opening remarks, I'd like to cover some important topics before Bruno and Sergio go further deep into details on results for the quarter. To start, I want to give some more color on our recently announced partnership with Ares. I truly believe this partnership will set an important milestone, not only for our growth trajectory, but for the company's history as a whole. We are very proud to partner with Ares, one of the leading alternative asset managers globally, and believe there will be significant gains for both companies from this partnership. The transaction officially closed less than two weeks ago, and we have already made significant progress with the Ares team. This week, we had our first Board meeting with the participation of Peter Ogilvie, Partner and Head of Ares Corporate Strategy Group, who has formally taken a seat on the Board. We are thrilled to have Ares in our Board to share best practices and strategic guidance on investment strategy and business operations to pursue the growth of our platform. In addition to our Board, several sub-committees had kicked off such as the global distribution opportunities for Vinci. In the short term, we will focus on our flagship strategies, which are currently fundraising, VCP IV and VICC across Private Equity and Infrastructure. Going forward, we believe there is substantial opportunity to drive value also for other private market strategies, such as private credit and Vinci SPS. We also commenced discussions for local product distribution for Ares in Brazil and of course, M&A opportunities. Additionally, we connected several of ours and Ares' Heads of Strategies to…

Thank you, Alessandro, and good afternoon, everyone. This quarter, we have exciting news to share regarding our fundraising. First, let me cover our private market segments. This quarter, we had some important contributions coming from funds across Private Equity, Real Estate and Infrastructure. Our private markets group has a stellar last 12-month period and now represents nearly 60% of our revenues. First, our fourth vintage for Private Equity flagship fund, VCP IV, held an important closing with XP, adding more than R$600 million in capital commitments. With this close, VCP IV is at approximately three-quarters the size of VCP III, and we expect further commitments in coming quarters. And this has been achieved in the most challenging global fundraising environment over the past 20 years. Please note that this and any further commitments have a retroactive fees clause that for charging management fees since the start of the fund, which was in the middle of 2022. This close positively impacted third quarter figures. This fundraising with XP also bodes well with something that we have been saying for a while. Brazilian investors are increasing their allocation towards alternative products. VCP IV is officially the vintage with the most local capital since we started the VCP strategy. This is true in both absolute and relative basis. We are thrilled with the traction seen from locals, especially in this environment, where interest rates are still at high levels. We expect with the easing cycle developing that locals' interest for alternative products should increase for future vintages across our private market strategies. Shifting to our real estate strategy. Late this quarter, we held a follow-on offering for our shopping mall REIT VISC. This was truly a milestone because for the past few years, primary issuance for listed REITs were basically muted due to…

Thank you, Bruno. Let's start with the management and advisory fees. Fee-related revenues totaled R$107 million in the quarter, our best quarter ever in revenues. Management fees were the center of this growth, boosted by new commitments for VICC and VCP IV and the catch-up effect, recognizing fees since the beginning of each of the funds in just one quarter. It's important to highlight this one-off effect, but keep in mind, the subscriptions translate into fees for Vinci over the long term with the commitments charging fees for the next quarter zone. With new prescriptions coming over the next few quarters for both V ICC and VCP IV, we should expect retroactive effects once again and possibly more discrete upsides from FRE as the funds have other closings. However, it's difficult to predict when exactly disclose and contributions will take place. When we look into our segments, private markets have been pushing growth for the platform, while offsetting challenging markets for liquid strategies and IP&S. As Bruno mentioned, we expect this part of the business to improve in 2024 as we continue to expect nominal interest rates to go towards single-digit levels. Another important factor to mention for third quarter revenues is that advisory fees posted a weaker quarter as we anticipated on our last earnings call. This revenue stream presents a significant cyclicality depending on the timing that the deals close. That's why when you think about advisory revenues, we target full year revenues. We can anticipate that we just signed two transactions that should close still in 2023 or at latest early 2024. With the amount already in-house for the fourth quarter, we will meet our annual target for advisory revenues. We can still see some upside in 2023, depending on the closing time for these two signed…

[Operator Instructions] Our first question comes from Ricardo Buchpiguel from Banco BTG Pactual. Please Mr. Buchpiguel, your microphone is open.

Hi. I want to ask about two topics. First, can you please update us a little bit with the net inflows environment, especially for liquid funds looking particularly in 2024? And still related to this kind of a fundraising topic, can you also remind us how much capital you have already raised in the flagship funds? And what are the targets so we can know what we could expect in the following quarters? And then for the second question, for the second time, I understand that during the Investor Day, you guys mentioned an expected average annual PRE of around R$100 million to R$120 million between '24 and '28. But given the still kind of a challenging environment that we are facing capital markets and still private market vintage yet to mature the results, does it make sense to expect a much lower average of PRE for next year and picking up to this target in the following? And also, what would be the main asset classes driving performance fees next year? Thank you.

Hi, Ricardo. That's Alessandro. Thank you for the question. Regarding the current net flows in terms of the more liquid asset classes, we are seeing more unmuted moods. So, we are not seeing strong either inflows or outflows. So, we are seeing more stable AUM regarding -- of course, there is a current appreciation of the liquid, especially Public Equity, because the market moved up in the recent weeks, but not relevant outflows or inflows that is really very packed with more volatile movements that we didn't see recently. So, it's kind of stable. Regarding the flagship funds, VCP IV we are reaching about 60% to a little bit more of the target fundraising. We expect this fundraising for VCP IV to end just on middle of 2024. So, we are still waiting for a final push, especially for international peace. So, we are still confident that we will reach the target. And maybe we can even surpass since we are currently making a further push, especially in Asia, Middle East and Far East as we speak. Regarding PRE, I will leave to Bruno to go in more details about it.

Okay. Ricardo, good to talk to you, and thanks for the question. I think you also asked on the targets. We are working now on three funds: VCP IV -- three main funds: VCP IV, VICC, and the Infra Credit funds. These three funds together, they have a target of about R$7 billion. We are probably across the three of them, we are probably around 70% of the target at this point. The rest was raised in the REITs, right? So, for the rest of '23 and '24, we're going to work the balance of these three funds. And in '24, we're going to add VIR V and SPS IV. Those two funds should have a target between R$3 billion and R$4 billion. So that's how we get to the R$15 billion overall target that we gave until year-end 2024. You add all those funds and also the expectations that we have for the REIT side of the business. We just raised R$300 million, and we are in the market now to raise additional money for VISC. So that's how you get to the R$15 billion. In regards to PRE, we gave this Investor Day guidance, but the main contribution here will be starting probably in 2025, 2026, when VCP III starts accruing performance. So, until that -- or paying performance, right? Until that happens, we're going to be basically mostly with the liquids and IP&S funds. These funds would, in a good year, probably be able to give us a number between R$50 million and R$60 million in revenues if we have a good year. By the second quarter this year, we were very optimistic about the rest of the year and the markets we're looking up and things were looking good for the country and the markets given what was happening with interest rates. But with the hike in the interest rate curve in the United States, that movement got temporarily delayed, right? So, we had the same movement in the curve in Brazil, and that affected the markets, which was an effect that happened mostly during the third quarter. And as Sergio made a comment, it impacted our liquid portfolio as we have been saying over the years that most of the liquid portfolio is in federal bonds with that widening -- being triggered by the widening in the United States, we had a negative mark-to-market in that position. And that's the case for the overall market. So fixed income funds performed poorly in the third quarter, and the stock market also did not perform very well. But now that the U.S. interest rates are starting to come down a little bit with some deceleration in the economy, we're already seeing tightening in Brazil. Hopefully, that will translate at some point with better flows in the liquid side.

Very clear. Thank you.

Our next question comes from Pedro Leduc from Itaú BBA. Please Mr. Leduc, your microphone is open.

Thank you, guys, so much for the call and taking my question. First, on this negative impact that the higher rates had in 3Q both in funds and other positions. Given that in 4Q so far, rates have come down a little bit, again, as you just mentioned, should we expect the opposite swing or some sort of benefit there? Or have you closed out or done hedges or something like that? And that's the first question. And the second, a little more structural. You mentioned have used the local retail distribution platform for one of the funds. There was a record, both relative and nominally. I'm guessing that you like the experience that you would like to continue using them. But how does it differ a little bit on distribution commissions from the other channels that you're using, so just that we can model it properly? Thank you.

Pedro, thanks a lot for the question. So on the returns of the liquid portfolio, you are right, I mean with markets tightening, the performance should be better. We have talked about this over time as well that we expect the return on the liquid portfolio on a net basis to be around 80% or 85% of the fixed rate in any given quarter. In the third quarter -- in the second quarter, we did 130%. In the third quarter, we did about 40%. So, if you add the two quarters, we are kind of around the average, let's say, it's around what we expect from a normalized standpoint. So hopefully, we can get back to that kind of 80% level with a more stable market environment. In regards to the distribution, the distribution, the cost is amortized in our income statement across the life of the funds. So, it already started in the third quarter, and it's going to be going on for the next several years. So that's how it will be impacting the income statement. So, it's already impacting FRE and will continue to impact FRE over the course of the next several years as the fund life goes on.

Okay. And should we expect you to use this channel more for other products going forward as well?

Yeah, we have used this channel in the past. It wasn't our first time. So, VCP III already used high-net-worth distribution channel. VIR IV use high-net-worth distribution channel, VCP IV used as well. We are planning to use it for SPS IV, VES, which is our infra fund in the water sewage space, also use it. So I think overall, what has been -- I think the main takeaway here in my view is what I mentioned during the pre-recorded part of the call. Despite the fact that we had interest rates above 13% for most of the fundraising cycle VCP IV, it is the biggest allocation we had from local investors to the strategy. So, we had the biggest -- and this is for all investor classes. So, we had the biggest allocation from high net worth. We had the biggest allocation from distribution in platforms in Brazil. So I think this is a very important point, which will -- goes back to the thing that we have been discussing over time, the under-allocation that we see to our asset classes in the local market. And even with a double-digit 13% nominal interest rates, we are still able to see those inflows into the private funds. So, it's something that really will help -- I mean, has helped over the past year-and-a-half, and we'll continue to help going forward as the reallocation in the local community to [indiscernible] the alternative asset management space continues.

Pedro, sorry, that's Alessandro. Just to add on top of what Bruno said, one message is very important, we use this channel, but we are very cautious in terms of the cost of the distribution. So, we always compare with the cost of a placement agent outside Brazil and et cetera, to really -- this fundraising effort to make sense for us in terms of costs. And more than that, as Bruno said, we have been very successful in terms of fundraising with institutions. In that case, for Vinci at least, we use our proprietary distribution channel. So, this specific distribution for VCP IV, for instance, is more for retail and high net worth and affluent than really covering any kind of institutional distribution inside this number. So on average, I think in terms of cost for us, we have been able to keep distribution costs very under control, and we are very aware that should make sense at the end of the day. So not raise money at very high cost doesn't make sense for us.

So, Bruno, Alessandro, thank you for the questions, answers and the year so far.

Our next question comes from Beatriz Abreu from Goldman Sachs. Please Mrs. Beatriz, your microphone is open.

Hi, good evening, Alessandro, Bruno and Sergio. Thank you for the call and taking my question. So my first question is regarding fee revenues. So I know that this quarter, you had the benefit of retroactive fees in the VCP IV and VICC funds, which naturally inflated the implied management fee for private market strategies this quarter. But what should we expect in the coming quarters? I understand that, that can vary depending on additional closing for these funds. But do you think that the implied management fee for private market strategy should come down from the strong number in 3Q, or should it be similar from 3Q? And then, my second question is on REITs. So, if you could comment a little bit on how your listed REITs are currently trading versus NAV? And if you expect any additional follow-ons already on, in this quarter? And then, you mentioned that you're looking to raise a new development strategy fund within Real Estate, VFDL II. Is that included in the R$15 billion guidance? And what would be the size that you expect to raise in that fund? Thank you.

Okay, Beatriz, this is Bruno. Thanks a lot for the questions. So for the third quarter, we had a one-time impact on our revenues. It's a number between R$5 million and R$8 million from the retroactive fees. So I think that's something that, going forward, we would expect to happen, but it's -- as Sergio mentioned, it's very difficult to time when the close are going to happen, right? So, we expect to have a closing in VCP IV the fourth quarter again. VICC should also have inflows. And then probably towards the middle of next year, we should have continued inflows in both funds. So that, I mean, could be bigger one quarter to the other will depend on when the closing happen, right? But the third quarter impact was the one that I mentioned to you. In regards to REITs, we mentioned this also in a prior call, REITs are the asset class that we have on the private side that are most correlated to interest rates. So, when there was during the second quarter, a very strong optimism regarding lower interest rates and the curve lowered, and expectations on future interest rates lowered as well. The REIT had a phenomenal performance. We had a very strong net earnings number during the quarter because of the mark-to-market from the REITs. That reverted somewhat in the third quarter, and it continues to revert somewhat in the fourth quarter. So, we had a situation that at the end of the third -- second and beginning of third quarter, we had several of our funds above NAV, and we had a very short period of time -- short window of time to do a primary offering. We did with VISC in that short period of time that we had the window…

Perfect. Thank you so much, Bruno. Very clear.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back to Alessandro Horta for closing remarks.

Again, I'd like to thank you all for attending our call, for your continued support, and hope that to come back in the next quarter to deliver again our results, and we hope that we have a very constructive scenario going forward with interest rates going down, and we are very confident in the performance of our platform going forward. Thank you very much, and have a good night.

The Vinci Partners' third quarter 2020 earnings conference call is now closed. Thank you for participating, and have a good night.