Azimut Holding SpA

MIL:AZM

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Azimut Holding Q1 2021 Results Conference Call. [Operator Instructions] -- excuse me, it was Q1 2022, I apologize. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Gabriele Blei, Chief Executive Officer of Azimut Holding. Please go ahead, sir.

[Gabriele Blei, executive]

Thank you very much and good afternoon to everyone. We will start, as usual, to walk you through the presentation and then leave sufficient time for Q&A.

Turning to Slide #4. A couple of highlights for our Q1 2022 results. Assets under management, total assets stands at EUR 83.4 billion, 43% come from our international business and are flat versus the end of 2021. Net new money, EUR 1.7 billion up to March. If we extend this to April, the number increases to EUR 2 billion, of which of the EUR 1.7 billion, EUR 200 million into product market products that have been already closed. Year-to-date, our weighted average performance is in excess of 265 basis points vis-a-vis the Fideuram Index, or minus 3.7% as of the end of April 2022. As far as our P&L is concerned, in Q1, we had total revenues of EUR 327 million, up 20% year-on-year, driven by increasing recurring fees.

Over the same perimeter, this number is plus 10% year-on-year, but we'll see this later on. Q1 operating profit of EUR 136 million, up 19% versus Q1. Costs grew in line with revenues and as far as net profit is concerned, EUR 96 million due to higher taxes as we had anticipated with our full year results.

Turning to Slide 5. The breakdown of our AUM. We have, as you have seen, EUR 83.4 billion at the end of Q1, of which EUR 35.8 billion is related to our international business, the rest being in Italy. And on the right-hand side of the page, you see how the split is not changing other than our private market exposure that increases to 9% of our total managed assets. I remind you, we started this expansion into Private Markets back in October 2019 and it was virtually 0 and is increasing nicely quarter after quarter.

Turning to Slide 6, the breakdown of the net new money in Q1. As you can see, the bulk of the money that we raised come from our operations in the U.S. and LatAm. Whereas in Italy, we have been impacted by a couple of nonrecurring items, especially linked to an expiration of a mandate from an institutional client of EUR 330 million and the divestment of EUR 100 million of our [ corp ] money to repay the bond.

We're still not accounting in those numbers, the activity of the network in relation to Private Markets, which account to more than EUR 100 million which is net new money expected, so excluding any switch from existing products. This figure of EUR 1.7 billion, as I said before, goes up to EUR 2 billion if we include the month of April. Q1 2022 in terms of revenues on Page 7, you see how revenues have increased by 20% year-over-year to EUR 327 million or 10% on the same perimeter. The delta vis-a-vis Q1 is of EUR 50-plus million more is evenly split between the new perimeter and growth from our Italian/foreign operations. If we go to the breakdown of the revenue, you can see how recurring fees are up 18% with managed assets on average up 12%. And if we dig into the details, you can notice how we have EUR 34 million of variable fees in Q1 this year due to the crystallization of performance fees following the change in the fee structure as effective 1st of April 2022.

Lastly, I would like to point out the fact that insurance revenues have decreased, but this is mainly linked to lower performance fees that were recorded in Q1 this year versus Q1 2021. Most importantly, starting from the 1st of April, we will start to book the new distribution fee, which based on a similar asset allocation that -- to the one we have today in our Luxembourg product, we expect to add EUR 35 million of recurring fees going forward.

Moving to the following slide. The contribution from the EUR 34 million of performance fee has been widespread across the number of products, effectively almost 60 funds have contributed to performance fees, thanks to good results across some categories, one of which we will see in a minute, which have contributed to this performance fee generation.

Clearly, this is the consequence of our active management style, diversification approach and leverage on our global asset management team. On Slide 9, as I was just mentioning, you see an example of a product that has generated significant performance fees. This is a Balanced fund, which is up 15% year-to-date. We never like too much to pick out specific products, but we thought that this was significant enough to explain how the performance fee -- the weighted average performance fee that we have generated so far is explained by some very good results of certain products with the average of the indices of Balanced products down 5, 10, if not more, percent year-to-date.

Moving to Slide 10, expenses. Distribution costs are up 26%, or better 8% on a same perimeter basis, whereas SG&A, if you look on the bottom left of the slide, of EUR 62 million is up 11%, or better minus 2% on a same perimeter basis. This is -- if you add on distribution and SG&A on a same perimeter, the growth is 4% year-over-year. This is the result, especially as far as SG&A is concerned, of good cost discipline in Italy which is somehow absorbed by the growth that we have experienced during the quarter in our foreign operations.

Moving to the right-hand side of the slide, you note that effectively the change in the perimeter, adding the revenue -- subtracting from the revenues, the cost is positive of EUR 1 million as far as the contribution on first quarter 2022, which is something that we have highlighted in the last quarters, that we have commented the change in the perimeter.

As far as SG&A line is concerned, you see how EUR 62 million is what we have achieved in Q1 despite EUR 7 million of change in perimeter, which is broadly in line with the average of the first, second and third quarter 2021, which is what we have tried to explain during the full year results of an abnormal figure in terms of SG&A in Q4 of EUR 79 million.

Moving on to Slide 12 and a further snapshot of how we have been generating the performance or the negative performance, but the overperformance vis-a-vis the indices, is explained by these 4 boxes and 4 charts. As far as the equity component is concerned, the exposure is -- has been, in absolute terms, we have over -- we have done decently well, whereas vis-a-vis the indices, we have underperformed.

The explanation behind this is due to an exposure to China and some emerging markets as well as some strategies that have underperformed vis-a-vis the index. But overall, nothing dramatic.

On the fixed income side, we are quite short in terms of duration, average 3 years, very well diversified across developed and emerging markets. And I guess that most of the overperformance here is also explained in terms of overall net weighted average performance that we deliver to our clients to virtually 0 exposure to Italian BTPs.

On the allocation side, this is where we have achieved the biggest overperformance, thanks to some specific products. One of them, we have seen it before, and an active management approach that has been paying off. As we have commented some several times on the Alternatives, the reference to the index is not very much consistent with the strategies that we have. But still there, we are generating a positive performance over the last couple of years.

Moving to Slide 13. The net weighted average performance, you see 265 basis points in excess year-to-date. And still, since the last -- January 2019, clients are still enjoying a net weighted average performance in almost 13% versus the industry of 7%.

Slide 14, Private Markets, a deep dive and some statistics here. We have started a couple of years ago. Nowadays, we have 29 products that have already closed; 12 of them are in fundraising or reaching closing phase. And vis-a-vis when we started or vis-a-vis 1st of January 2020, when we had 3% of our clients invested in at least 1 Private Market product in Italy, today, this number has done 5x has grown fivefold including now 30,000 clients out of our 200,000 clients invested in Private Markets. The exposure to Private Markets have increased 8x since the beginning of 2020 and it is spread across a number of different strategies, where private debt is accounting for 60% or slightly more than that. The split between Italy and the U.S. has not changed dramatically. So it's 60-40, consistent with the last quarters.

Moving to Slide 15. We have provided you with an update on our Private Market exposure and the recent transaction that we have announced with Broadlight Capital, where we acquired an equity interest of 10%. We will be raising capital for Broadlight through some vehicles that we will be launching shortly. And what it is -- what is Broadlight focusing on is high-growth innovative companies in mainly 2 sectors, the tech sector as well as the consumer landscape. David is heading a very strong team of professionals and with the Yorn Brothers that have extensive network and access to the Hollywood stars, we will be trying to invest in very interesting companies and businesses.

I would turn to the following slide, the focus on our Italian clients. And just as a note, this is just private clients. It does not include institutional clients. So it's purely retail clients or private clients advised by our 1,800-plus financial advisers in Italy. You see how the split is 40%, what we can call affluent, so anything below EUR 500,000 as far as investments are concerned; and the rest being from EUR 500,000-plus as far as clients. In the -- this has not changed dramatically over the years, but it has increased in terms of higher-end clients that we advise as far as our financial advisers are concerned. If you look at how this is segmented by age, clearly, let's say that the sweet spot is between the 30 years and the 65, where we have more than 50% of our clients.

Moving to Slide 17. The Fintech initiative, we are just providing you a quick snapshot here in the following slide, actually, of our initiative, which is called Azimut Marketplace. We'll see this in a minute. Our Synthetic Bank project carries on. We have now granted loans to more than -- for more than EUR 400 million. And we are in the process of fundraising with our second version of digital lending fund as well as we will be launching a new private debt product soon and during 2022.

This is clearly opening up opportunities to talk to Italian small and medium enterprises as well as exposing our financial advisers to new clients. As far as the app is concerned, something that we have mentioned in a couple of press releases and in the recent presentation, Beewise has been launched effective 30th of April this year for the Generation Z and Y, so anything between 18 years of age and 36 years of age. We are pleased with the start, with actually 30,000 downloads of the app so far, which is hopefully a good indication of the work that has been done by a fantastic team of Millennials that are behind this project that we have started internally with internal resources.

Moving to Slide 18, Azimut Marketplace. It's, again, a digital platform that allows entrepreneurs and CFOs to have 1 single point of access to a number of different Fintech solutions. And this is something that is gaining momentum. As of May 2022, there are more than 3,000 SMEs registered that are using -- who are starting to onboard on the platform. Interestingly enough, 50% of these SMEs are from non-captive channels, so excluding the links to our financial advisers. And as you can see, the acceptance and the use of the platform is growing month after month and we expect having extended the facilities that you can have on the platform to see more conversion of SMEs into real clients that activate a number of different services. I will turn to Alessandro for a couple of slides on our financials and deep dive.

[Alessandro Zambotti, executive]

Thank you, Gabriele. We can now move to Slide 20 and 21 where we have the full, let's say, the full P&L of the group. The main key elements have been already discussed by Gabriele at the beginning of the presentation. Therefore, we'll try to go quickly. Total revenue increased by EUR 54 million, thanks to the positive growth in the recurring fees that increased by EUR 39 million. This is mainly explained by, on one side, the new perimeter, therefore, [indiscernible] mainly and the other part, so the other [indiscernible] million are linked to the growth of our business in terms of assets under management, therefore, the activity of our [indiscernible] Luxembourg. Variable fees increased by EUR 23 million, EUR 24 million. This is -- I mean this is explained by the fact that we are now changing starting from 1st of April the new mechanism and also the good job performed by our portfolio manager despite the negative situation of the market. The other income increased by EUR 6 million, which again mainly explained by the change in perimeter and negative elements are linked to the insurance revenue, but we [ attribute ] the difference -- the negative difference of EUR 13 million due to the fact that we have almost 13 -- approximately EUR 16 million less in terms of performance fees, but EUR 3 million positive in recurring fees.

At the level of the operating cost, we increased by EUR 32 million, again, main of this variation, if we consider distribution costs, but also personnel and D&A are linked to the new perimeter and the rest of the difference is directly linked to the evolution of our recurring fees, so the remuneration of our financial adviser. And in general, the change in perimeter, if excluded, we can say that the growth is very low to 4.7%. And also a positive message is linked to the recurring margin that is stable if we consider the reference to the first quarter '21.

So moving to the second part of the P&L. So moving to the nonrecurring part, we have a EUR 3 million positive in finance income. This is explained by 2, let's say, elements. So on one side, we have a positive contribution from the fair value option valuation for EUR 9.4 million. On the other side, we have EUR 6 million negative of non-realized loss linked to our liquidity that is invested on our funds and partially, therefore, which is impacted by the negative market conditions.

On the other line, we are almost flat. Obviously, profit before tax is positive, is significantly growing compared to the first quarter '21. But then the impact on the income tax reduced our profit to a net profit that is almost in line with the first quarter '21. Obviously, we are [ considering ] a quarter where we have also some provisioning tax. Therefore, we maintain the guidance -- the guidance that we present during the last call. At the level of the net financial position, nothing, let's say special. You can see and appreciate now the disappeared, the bond that we pay -- that we repaid at the end of March. We are actually way positive in the net financial position with EUR 500 million and it's EUR 100 million higher compared to December '21. I'm going to give back to Gabriele for the rest of the presentation.

[Gabriele Blei, executive]

Thank you, Alessandro. Thank you very much. So concluding with a couple of slides on 24, just a snapshot of what has been the Board reelection for the next 3 years. The 5 CEO structure has been confirmed. We have increased the number of independent Board members. Now the split is 50-50 between executive and nonexecutive and the gender representation has improved with 44% being female representation.

Lastly, which is something that we have tried to improve over the last 3 years, is our remuneration policy with further disclosure as well as the inclusion of a long-term incentive plan and ESG targets for Executive Board members.

On Slide 25, a bit of a summary of going forward, what we expect or hopefully, what can be expected is still, we are confirming our EUR 400 million net profit target. And we hope that the normal market conditions that we are assuming indeed translate into normal market conditions. Today, we live in an world that have some unknown, which is how the world will be evolving. And probably some more knowns rather than when compared to some months ago as far as the expectations in terms of increase of interest rate and what the central banks are intended to do going forward. And hopefully, an inflation scenario that is stabilizing or in a downward phase.

As far as Italy is concerned, we are leveraging on our global product offering for our Italian clients. You will see over the coming months, some new initiatives that will be launched and will leverage also on our U.S. exposure in terms of Private Markets. We are, therefore, continue to develop products, both public and private. There are a couple of [indiscernible] funds that we will be launching over the next quarters, but most importantly, the activity will relate to our Private Market exposure. And the aim is always to improve the network efficiency with the focus on asset allocation to generate medium, long-term positive performance for our clients as well as focus on our network profitability that translates into profit for shareholders. Top line margin is expected to remain consistent. Clearly, here, the stabilization of the market environment is important. But as we have stated before, the introduction of the new fee model should also increase the stabilization of the revenue stream going forward.

International, we will be expanding, and we continue to do so, our global asset management team. There are more than 150 colleagues across the 17 countries in which we operate. The interaction of these colleagues and diversification in terms of products has been and is going to continue to be key in terms of performance generation as well as capabilities to implement our active management approach. We are developing strategic partnership and the focus is always to integrate production and distribution further, where we still are lacking behind, which will translate in the profitability driver that we have communicated in the past.

As far as Private Market is concerned, we have with April reached EUR 5 billion. So the 8x that we have seen before has to be updated to 9x what we had when we launched the initiative in 2019. We are actively fundraising on a number of products today and in the coming months and quarters, we will announce closing of some of these products and the launch of others. And we are going to grow through both domestic as well as our U.S. hub and capabilities down there. So if we translate all of what we have done in the first 3 months of the year in terms of numbers, this is where we stand vis-a-vis our target, pretty much in line as far as net profit target is concerned, vis-a-vis the EUR 400 million. And as far as the net new money collection, we are at EUR 1.9 billion vis-a-vis a target of EUR 6 billion to EUR 8 billion for the remainder of the year. That's it. And I'll leave the floor for Q&A.

[Operator]

[Operator Instructions] The first question comes from Hubert Lam of Bank of America.

[Hubert Lam, analyst]

I've got 3 questions. Firstly, on -- your fund performance has been good, both on absolute and return -- relative basis. What are you doing to kind of leverage the strong performance to accelerate the flow of -- to your flows. Maybe just talk a bit about your efforts around cross-selling into the advisory network, particularly in the U.S. and a little more detail on the progress as well. The second question is on Sanctuary. How many -- how much revenue did you get in -- from Sanctuary in the quarter? Is this in the other revenue line? Or is it some of it also in the management fees? And maybe you can just talk a bit about the revenue outlook as well for Sanctuary. Do you expect it to grow in the following quarters and also your expected earnings for this year, if anything has changed? And lastly, on SG&A costs, it was better than expected, EUR 62 million. Is that a number that we should expect to be the run rate going forward?

[Gabriele Blei, executive]

Hubert, can you repeat the third one, please?

[Hubert Lam, analyst]

Gabriele, it's just on the SG&A costs, EUR 62 million. Is that -- should we think about that as the, as the run rate going forward per quarter?

[Gabriele Blei, executive]

Okay. So we have done a pretty decent job in terms of performance so far this year. Actually, we are very pleased with where we stand in terms of overperformance vis-a-vis the index. Clearly, there are lots of variables that are evolving ahead of us. And what we tried to do during this higher period of volatility is always to try to be as close as possible to our clients and interact a lot with -- through our financial advisers, simply because this is where we can really make the difference vis-a-vis, let me say, more traditional channels of providing financial services. So we are indeed using a number of products that have been developed over the past years. We're expanding the product range. We are pushing ahead with the allocation to Private Markets that has to increase over the next quarters. I remind you, we have a very strong pipeline of product launches because this is what we want to try to do in terms of reallocation of assets as well as performance extraction over the next years. So the work with the network is quite significant and we expect this to be able to continue also thanks to the fact that with the reopening, we are more and more interacting with them on a person per person basis and not just through Zoom or digital channels, which to some extent is helping also in passing some messages and getting feedback. As far as Sanctuary is concerned, Alessandro, you want to give the numbers?

[Alessandro Zambotti, executive]

Well, in the full quarter, therefore, going -- I mean I'm not going to -- I'm going to compare it with the first quarter where if you remember, in the first quarter '21, we had already a contribution for 1 month. Therefore, the full quarter is going to be, let's say, more or less EUR 25 million in terms of recurring and other income fees. And then we have distribution costs together with the administrative cost, they are -- that are more or less, let's say, the same as therefore at the level of the net income is going to be flat.

[Gabriele Blei, executive]

Thank you very much. SG&A, let's say that the EUR 62 million is a good start in terms of discipline. As we have had the chance to discuss, the Q4 print was not a good indication of where we were expecting SG&A to go for the following quarters. So what I can say right now is that based on the environment that we are living in and the expansion that we expect, so excluding in a way the change in the perimeter, the 5% to 7% growth is still what is our basic assumption in terms of SG&A cost inflation. So I would leave it to that and let's see how it evolves over -- in the next quarters.

[Operator]

The next question is from Luigi De Bellis of Equita SIM.

[Luigi De Bellis, analyst]

I have 3 questions. And the first one is on the guidance for 2022. Can you elaborate on the main assumption now in terms of performance fees, [ post ] market effect on assets under management implied in the EUR 400 million guidance? The second question on the net inflows. So a very resilient performance so far also considering the extraordinary elements of Q1. Do you not see the risk of outflows in this context? What is the difference compared to the past correction of the market? So generally speaking, the difference compared to the past? The last question on the M&A and the use of cash now, EUR 500 million net cash. What is your strategy thinking about M&A? Do you expect some other deals in 2022 for you and which size, more or less?

[Gabriele Blei, executive]

Luigi, as far as M&A and the use of cash, we have -- we stick to what we say. We have repaid EUR 350 million of bond. We want to have the flexibility to continue to perform M&A even of a larger size. And most importantly, we want to repay the EUR 500 million that expires in 2024. Don't forget that the net financial position today that you have seen does not account for the dividend payment of EUR 1.3 per share as well as the payment of -- linked to the equity participation instruments. So adjusting for that, clearly -- or accounting for that, clearly, the use of cash requires us to continue to maintain the discipline on the one side and to put aside some additional net profit for being ready to repay the EUR 500 million. Having said that, we still have appetite for M&A transactions. We do look constantly, potential opportunities to increase our existing footprint in a number of different countries. And if everything goes as planned, we should be able to announce at least 1 transaction of our Private Market exposure in the U.S. during 2022. There are still ongoing transactions that we perform in our Australian subsidiaries. And eventually, we might invest some of the proceeds that we generate in expanding our footprint in some of the other markets.

As far as net flows are concerned, I always joke with some colleagues that we have seen the last monthly print as far as outflows are concerned back in 2011. Clearly, the last annual print was back in 2008. There are lots of similarities in as far as uncertainties are concerned, that this today, with a -- with back -- with those years. But still the benefit of the investment that have been done over the last years are clearly paying off in terms of diversification of distribution channels, in terms of product capabilities. And I would say that the system, the financial adviser network and the industry, is showing once again to be much more resilient when the increase in volatility kicks in, vis-a-vis, let's say, more traditional channels. Advisers tend to be closer to clients and this proximity clearly unlocks the value proposition of the business model.

Guidance, the assumption is -- it's very difficult to share a very strong opinion at this stage. But we are not assuming further material deterioration between now and year-end. So today, you're seeing most emerging and developed markets displaying negative performance, double digit. There has been a significant downturn as far as the fixed income side is concerned for the, I would say, first -- very first time, it has been quite brutal since many years. So if just we don't see further deterioration, that's the basic assumption with which we are working. As always, we are very committed to reaching the target. We set the target in March and everyone within the organization is working with the EUR 400 million print in his mind or her mind.

[Operator]

The next question is from Domenico Santoro of HSBC.

[Domenico Santoro, analyst]

It's Domenico. A couple of questions from my side as well. And first of all, if my calculation is correct, there was some slippage in terms of margin quarter-on-quarter. Shall we expect some more in Q2? Or at this point, the asset mix, the way the split is as of now, it doesn't involve any more deterioration in margin? The second question is on the guidance that you just gave on the SG&A. Just to reconcile this with what you said a couple of months ago, my understanding was that you were guiding for total cost, including also distribution. We should have taken basically the quarterly average last year and then multiply by 5%, more or less, which was in the range of EUR 780 million, if my understanding was correct. Now you're guiding us to 5%, 7% on the SG&A only. I understand that things are moving because probably costs are better and distribution costs, of course, now include also the Sanctuary contribution. But how should we reconcile the two? So the EUR 780 million makes good sense or not? And then on the new performance mechanism, I was just wondering, as of now, so since the end of March, what would be the situation in the sense that if you had to stop the world now, would it be variable performance positive or negative based on the performance of your funds? And then just a clarification on the old mechanism, if it is done, so we should not expect any more performance fees based on the old one?

[Gabriele Blei, executive]

Thank you, Domenico. Let me start from the last one as it is the easiest one. We do not expect any further performance fee from the old mechanism based on our Luxembourg fund. I remind you this new methodology applies to our Luxembourg-based fund, so EUR 27 billion, roughly speaking. Whereas there are some other products that are outside of the scope of the fee change.

As far as the second part or the first part of your question is concerned, I have tended to avoid speculating on the performance fee going forward. And I would stick to that because it's just too risky to get into a discussion of how much performance fee would have been if we would stop the world today. Unfortunately, this is not happening. And we still have to live other 7 months before the end of the year, probably very complicated or -- whether positive or negative. So it's just prudent not to try to guide too specifically on this aspect.

Slippage on Q-on-Q margin. Yes, I mean we haven't observed major swings, honestly speaking. Margins tend to be quite stable. And do remind -- I want to remind you what happened in the market as far as the first 3 months are concerned. So I would say that plus or minus some basis points, it's kind of physiological given the activity of the network. What we can avoid having is severe swings thanks to the flexible nature of our funds and the mandate that the products have which allow to minimize the volatility within the margins.

Guidance on SG&A and then it is extended to cost. Let me try to clarify because probably there is a bit of confusion here. The distribution cost line, 50% of that line is the rebate of the fixed management fee. So this clearly goes in a linear relationship with the growth or the evolution of the recurring revenue component that are the fixed management fee component that is comprised within the recurring revenue, okay? The other 50%, I would say that 2/3 are linked to recruitment activity, whereas the rest is marketing and overhead, mainly associated to the network. Clearly, there are some costs that the change in the perimeter are impacting, but mainly these items that I just mentioned are what comprise the distribution cost line.

So just thinking that the distribution cost line will grow 5% to 7% without assuming what is the growth of the recurring revenue is a bit too strong in the sense that we cannot just avoid assuming what would be the recurring revenue growth. Whereas this is more easier to apply a cost inflation in the range of 5% to 7% when SG&A is concerned. And as a reference, I would break down that line roughly 50% linked to our Italian business or 45% and the rest being our international business. So all in all, we are seeing a good discipline and cost containment, if not reduction, in our Italian operation, whereas we are seeing growth due to investment and expansion on our foreign operations. This drills down to the 5% to 7% indication of SG&A for 2022. We have been slightly below in the first quarter. I'm not saying this is a good indication of where we will end up because we typically know, we all know, you included, that second and fourth quarter tend to have slightly higher cost charge, but that's due to some seasonality effect that eventually we might govern if we require it to be more disciplined to get to the EUR 400 million target.

[Domenico Santoro, analyst]

All right. Just a clarification. Thanks for giving us the guidance on the tax rate. I wonder if for the fulcrum, the new mechanism, and the performance fees are going to be significantly positive at the end of the year. The tax rate, of course, is going to be lower, right?

[Gabriele Blei, executive]

Can you elaborate on your thinking just for us to understand, given that...

[Domenico Santoro, analyst]

Yes. I guess the 20% that you gave is assuming no material contribution at this point from performance fees, given that those are -- in case are -- in case materialized, shall we consider those non-Italian revenues as such taxed at a lower tax rate? Or in case they materialize, they are considered Italian revenues? So the tax rate can fluctuate depending on how much of this fulcrum is going to be positive or not.

[Gabriele Blei, executive]

Listen, Domenico, clearly, the performance fee generation today is subject -- is mainly linked to our Luxembourg product and Luxembourg being a country in which we have a higher than 15% tax rate, we might see some higher end of the year tax rate if there are going to be material performance fee. But if there are material performance fees, we would be more than happy to pay a couple of extra taxes because it would mean that we would be closer, if not beyond the full year target. Having said that, we expect to implement all the measures that are behind the guidance that we provided, the 20% guidance. And given the split of countries and the profit generation across a number of different locations, we would still confirm the 20% tax rate for this year and 22% from 2023 onwards. What we have seen in, in the first quarter, I would not tend to extrapolate for an indication of where we would end as far as the full year. Remember that in the past, when we had the 15% tax rate guidance, in some years, we were even significantly below that, but we stick to that guidance simply because it depends on where and what generates a profit that eventually may have this tax rate fluctuate. But we still are working with that assumption of 20% this year and 22% onwards.

[Operator]

The next question is from Giovanni Razzoli of Deutsche Bank.

[Giovanni Razzoli, analyst]

Three questions. The first one, we clearly have to get more familiar with the new fulcrum fee structure that you have introduced in April 1. So just to clarify, the EUR 35 million of additional recurring revenues are those which corresponds to the 50 basis points of add-on that you have announced at the end of the year. And then we have the plus 20% fulcrum adjustment, which is not included in that EUR 35 million. This is my understanding, is that correct? And it seems like given the very good performance of your funds, you've shown just one, but I guess that there are many others which are performing well. You mentioned that your clients are benefiting from around 300 basis points of average performance year-to-date. I would say that given the structure of the fulcrum, you are in the condition to benefit from that, all else being equal. So is my understanding correct or not? And related to this, the EUR 400 million net profit guidance for 2022 that is above consensus, is that excluding the fulcrum adjustment, right? So this is my first question. And the second one, clearly, we are all focused on the impact on the interest rates on the commercial policies and on the client propensity to buy managed product. You have well-diversified geographical footprint. So I would say you are more protected from this challenge, is that correct? Because it seems to me that you are relatively confident of achieving the total inflows of EUR 6 billion to EUR 8 billion even in this environment. So I was wondering whether there is this threat going forward.

[Gabriele Blei, executive]

Giovanni, thank you very much for your questions. So just to try to give you some clarification, the new fulcrum and the new distribution fee accounts for EUR 35 million. Yes, that is confirmed and it's effective 1st of April this year. So from the 1st of April, we are starting to generate that additional portion of fee. And you will see that in Q2 onwards. The adjustment of the fulcrum mechanism, which is the second leg of the new fee structure, will start effective July. So effectively, you will not have a negative positive adjustment in Q2 because we need the 3-month period to be generated before we can apply this fulcrum mechanism.

On the question on the positive performance based on the products that are generating performance fee and positive performance of our clients. Effectively, the answer is yes, in the sense that we might see positive contribution from specific products, whether they overperform vis-a-vis the benchmark. I do remind you that the benchmark are ESMA-compliant benchmarks and that there is a cap and floor to plus/minus 20%. So effectively, even if there is a super stellar performance or underperformance, you will be capped to 20% -- or floor to 20%. The fulcrum adjustment is not considered in our expectations going forward. So we're not betting any positive/negative contribution.

As far as the diversification is concerned, we are where we wanted to be. When we started the international expansion, the long-term goal was to provide geographical diversification, but most importantly, new capabilities and products, new distribution channels, to be able not just to depend on any single country or market based on macroeconomic variables that may or may not influence the underlying trend. So this is what I've tried to explain to investors over the last year is that which is a situation in which the Group is much better off than when we lived, let's say, 2008, which we're reminded a couple of questions before, because of its diversification footprint on a number of different aspects. Our clients are perceiving this and our financial advisers are in a much better position today because they can have access to a very wide product range. Expertise and interaction with our global asset management team as well as the capability to invest in Private Market products.

Clearly, this is the game changer vis-a-vis what we used to have up to 2019 because it provides for long-term extra performance that we will be generating for our clients, given the underlying trends of those asset classes. So I don't know if we can say that we are more confident today, but certainly, we have much more instruments to be able to manage effectively the clients of -- the money of our clients and interact with our financial advisers wherever they're based.

[Operator]

The next question is from Alberto Villa of Intermonte SIM.

[Alberto Villa, analyst]

Gabriele and Alessandro, 2 questions. One is on the -- again, on the fulcrum. I was, well, curious to understand how your clients reacted to these changes since investors and analysts took a while to fully understand the implications. So I was wondering if there were any complications in explaining how it work and if you had any pushback on that. The second one is on the net inflows target and the net inflows since April this year. If you can give us an idea of what's the proportion between domestic and international inflows you are expecting. And also related to that, you added 39 new advisers in the first quarter. I was wondering if this run rate can be taken as something you can confirm throughout the year given the complexity of the financial markets and how recruitment is expected to -- to have an impact on the overall net inflows for -- target for 2022.

[Gabriele Blei, executive]

Alberto, thank you for the questions. So I mean the understanding of our network vis-a-vis the fulcrum is -- has been fully since we explained this to them starting from January. They had time to prepare the clients. They had time to discuss the reason why we were doing this and what this would imply in terms of total expense ratio, which stays unchanged vis-a-vis, let's say, an average of the last 3 years. The most important aspect is that we're not changing this and we are compliant with the guidelines provided by ESMA. We never like, and we continue to reaffirm this, to need to change the fee structure, but this is something that we were forced to do. And we try to do it to be able to continue to generate performance for our clients, which is the only thing that they care, or one of the most important things that they care, and on the other side, we needed to maintain margins for our stakeholders.

On net flows, we think we will get to the target we have set. Clearly, there is going to be -- it's hard to predict from where these numbers will come, simply because the volatility and the macro backdrop are impacting each and every country. What we're seeing today is still a good contribution from our U.S. exposure, still very solid numbers and as well as from our LatAm business, Brazil is in positive territory month after month. Clearly, when we will be approaching election in Brazil, there might be some volatility. And whereas in our Middle Eastern exposure, we do continue to see solid numbers out of Turkey, good trend in the UAE. And despite last month, Egypt has performed quite well above our expectation. Our Australian business, the organic flows is solid. We continue to see organic flows, plus there is the sweetener of our M&A activity down there that is bringing positive flows. Hong Kong is still sluggish in a way. But this is more than offset by the asset gathering activity that we are experiencing out of our Singapore business. So all in all, I would expect a good contribution, eventually in excess of 50%, coming from our foreign operation, whereas our Italian business will continue to be focused on gathering money from our Private Market products that eventually we will close during Q2, Q3 and Q4 this year, helped also by the recruitment activity.

Recruitment these days is positive. The macroeconomic -- the market scenario may slow down certain transactions due to the fact that financial advisers will have to convince clients to move with negative performance. And somehow, this is historically something that they tend to be a bit skeptical to do. Having said that, in periods of negative markets, our existing advisers, also given the product range that we have put in front of them, tend to contribute more towards the flow rather than the recruitment activity. So this is a bit of color around net flows expectations.

[Operator]

The next question is from Angeliki Bairaktari of Autonomous Research.

[Angeliki Bairaktari, analyst]

If I may, on the target for EUR 6 billion to EUR 8 billion flows, how much of that do you expect to be in managed assets this year? And I noticed that AUM flows in the first 4 months of the year have been weaker than the flows that we have seen at peers. I understand that you had those institutional outflows and also the EUR 100 million of outflows from investments in [indiscernible] to repay the debt, but April was also rather slow in terms of managed asset flows. Do you think that has anything to do with the pricing? Or is it just because of the more difficult market conditions in the past couple of months? And it's interesting to hear that the performance in Brazil and Egypt and Turkey is positive year-to-date. I was wondering what is the outlook for net flows in those countries considering a much more challenging macro, I would imagine, relative to Europe? I mean today, we saw an inflation print in Brazil which is the worst since 2003. So how confident are you that net flows will remain positive in those emerging market geographies given inflation concerns? And last question on Beewise, can you give us some color on the products that customers can access through the app? Could they access just Azimut funds or also third-party funds?

[Gabriele Blei, executive]

Thank you, Angeliki. If you want to try Beewise, it's open for non-Azimut clients. So please feel free and then give us feedback. But besides the joke, we have engineered funds that are exclusively for the app, typically following some themes that clients can pick and choose, with a good degree of ESG principles embedded in the way we engineer and invest in the product. So it's quite for a generation that is approaching investment, that has little knowledge about that, but want to learn and to plan based on certain objectives what they want to financially achieve over the next 2, 3, 5 years and onwards.

On the flow target, managed, mon-managed, I don't think we have provided the split. I would speak to that indication of a total EUR 6 billion to EUR 8 billion, given also the scenario. We're just seeing some commercial from banks offering guaranteed products to attract clients. And you know that when this starts it will eventually provide some interesting alternatives to managed products for clients. And we are certainly having a wider enough product range to be able to fight back these kind of approaches.

The net inflows in Egypt, Brazil and so on. Let me start from Brazil. What we are seeing, and you're absolutely right, is an inflation print that is very strong. The Central Bank has moved quite aggressively by raising interest rates. The Selic rate is at 12.5% and this is clearly impacting vis-a-vis what we have seen in the last years, where the interest rate locally has gone down significantly. And this favored the allocation to equity. What we have seen in the last quarter is an inversion of this trend. And luckily enough, because we went to Brazil to implement production and distribution center based on a product center that is diversified enough to provide a one-stop shop to our clients, we do have fixed income macro strategies that will and are able to avoid losing clients because they invest in some fixed income instruments. So this is probably one of the explanation behind the fact that with a wider product range, we're not experiencing outflows out of our Brazilian operations. If we pick Egypt, we started marketing our retail products down there over 2021. There is a good base of institutional investors that have given us or allocate to us money and we expect the retail flows to continue given the interesting products and the good performance or overperformance that we are continuing to generate. Excuse me, but I missed your other question. There is one that I'm missing answering.

[Angeliki Bairaktari, analyst]

No, I think you've answered all of them. I guess there was also a component about Turkey, which is also in terms of macro. The macro is looking pretty challenging there. I don't know if you have any comments.

[Gabriele Blei, executive]

Listen, yes, I mean it's challenging. Inflation has skyrocketed. We have even there, a very good product range with very solid track record going -- dating back to 2011. We can create private funds for high net worth individuals. We manage assets also in U.S. dollar denominated, which is attractive for currency reasons. So even in Turkey, the product range is one part and one important part of the explanation. The other important part of the explanation is the fact that we are not just diversified in terms of distribution channel with our financial advisers that are a good team today, but we are starting -- or we have started last year to go outside of Istanbul. And we have opened offices in a number of minor cities but with significant wealth. Because today, the brand is consolidated, the results and the track record are there, and we felt we could take the risk or the opportunity, depends on how you see it, to expand our geographical footprint within Turkey and this strategy is actually paying off.

[Operator]

The next question is from Filippo Prini of Kepler.

[Filippo Prini, analyst]

I've got a couple of questions. The first one is still get back for a second on the new mechanism of performance fee. Is it correct that from July, so basically from the third quarter, you will get the performance fee on a monthly basis, clearly, if you will overperform compared to the -- your benchmark over the previous 3 months? And second, on the Private Market. I see that now you have got more than EUR 2.9 billion of Private Market assets in Italy. I would like to know how much of these assets are also deployed, it's investments, not just committed capital. And if the management fee you will charge to your client, retail client, I guess on these assets start to be material into your quarterly reporting.

[Gabriele Blei, executive]

Filippo, July, yes, we will start to have eventual performance fees or give back some of the management fee in accordance to the application of the fulcrum mechanism. So as I think I tried to explain in the last call, we might see a performance fee line that is positive or negative depending on our capability to over, underperform. Once again, this is capped and floored at 20% vis-a-vis the benchmark.

On the Private Market funds, I honestly don't have the number with me, but Alex will definitely provide you with the figure later on. What I can tell you is we have -- we do single closing, especially because retail products are too complex and we have to manage too many clients within each and every single fund. And then when we closed the product, we start to calculate a management fee on the money that is committed. And we have done in our funds, several investments that were in the press in the private equity space. Most of our private credit funds are, if not fully invested, more than 70% invested, especially the first ones. And let me see -- yes. That's right, for the private credit fund, whereas Demos I, let me see the figure, Alex, do you have it handy? We have invested half of what we raised. So of the EUR 280 million, EUR 140 million has been invested, just as an indication of the first product launched in 2020 -- closed in 2020, sorry.

[Operator]

Mr. Blei, gentlemen, there are no questions registered at this time.

[Gabriele Blei, executive]

Okay. Thank you very much for your time and we remain available for any follow-ups. Thank you very much. Bye-bye.