Azimut Holding SpA

MIL:AZM

Earnings Call Transcript 2022-Q2

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Azimut Holding First Half 2022 Results Conference Call. As a reminder, all participants are in a listen-only mode. After the presentation, there will be an opportunity to ask questions [Operator Instructions]

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

[Gabriele Blei, CEO]

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

So if we start on Slide number 4, some highlights on the first half results with a business that has proven to be resilient and still growing. Assets under management, total assets, sorry, €81.2 billion, of which 44% stable, if not slightly growing, linked to our international operations. First half net inflows of €3.5 billion, almost slightly more than 4% of the end of 2021 AUM, of which €700 million went into private market products.

As far as the weighted average performance net of fees, we're still enjoying an outperformance vis-a-vis the index of more than 200 basis points with a weighted average performance negative by 6.5% nowadays. First half total revenues of €666 million, up 18%, mainly driven by recurring fees as we will see in a moment, which account for 83% of our total revenues.

Operating profit stands at €276 million, up 19%, thanks to the positive evolution of revenues and costs that grew slightly less than our revenues. First half net profit of €202 million despite a higher tax charge in the semester, but it's still in line with our full year target of €400 million.

Turning to the next Slide number 5, a snapshot of our asset evolution inflow environment. We're up year-over-year 7% in terms of total assets under management with a 2% increase in total managed assets. If we look at the average figures on the right-hand side, €82.6 billion at the end of the first half 2022 with still an evolution of slightly more than €4 billion in terms of assets under management.

When you look at the net inflow evolution, we clearly are posting positive net flows throughout our businesses across the world with significant impact. Thanks to the Italian network as well as our U.S. presence in the product market segment and benefiting the asset under management evolution.

Turning to the next slide. We see the usual breakdown of inflows per product and regions. As you can see, as far as Italy is concerned, we're still picturing the one-off impact that we had during the semester, which account for almost €0.5 billion. But most importantly, the bulk of the money is going where we are directing our network as far as the product suite that we have, and therefore, private market products.

When we look at the Americas, clearly, Sanctuary is still benefiting from significant growth and flows as well as within that context, we see €240 million of private market products, thanks to some closing of Kennedy U.S. funds and a couple of other closing that we had in the U.S. Out of the Americas, Brazil and Mexico have enjoyed significant positive net inflows with more than €300 million each in the first half, and you're still seeing a positive evolution this month as far as Brazil is concerned.

Asia Pacific, Australia, almost €200 million in the quarter -- sorry, in the semester and the Hong Kong and Singapore have collectively achieved €50 million of net flows. When we look at the Europe and Middle East; Middle East is seeing a positive evolution in terms of close out of Turkey, which is offset partly by the Egypt evolution, which whereby we are impacted by outflows due to some decision of sovereign wealth funds to divest the region. This is then we have to consider a positive inflow environment of almost 100 million in Dubai and the UAE in general.

As far as July is concerned, we are still expecting a positive evolution, driven by both Italy and most of the markets in which we operate internationally. And then clearly, as we go into the summer holidays, August, December, September will tend to be weaker month.

Turning to Slide 7, a quick snapshot of where we stand as far as the split between Italy and international assets internationally, €36 billion, flat quarter-over-quarter, where we stood in the first quarter 2020 at €35.8 billion, whereas in Italy, €45.2 billion, which compares to €47.7 billion in the end of Q1 2022. So down €2.5 billion linked to market effect.

Whereas as far as the split in terms of asset class, you see finally private market at the double digits, standing at 10.5%. This clearly does not yet include the acquisition we have just announced this morning of RoundShield, which would bring that percentage, assuming the same level of assets under management of €52 billion, closer to 11.5%.

Moving to the next slide. We can just walk you through the revenue evolution and breakdown. We have reached €666 million in the first half, up €100 million vis-a-vis the same period last year. This is mainly driven by underlying solid growth in AUM, albeit lower performance fees that we have accounted for in the first half 2022 versus 2021 to the tune of €10 million.

If we look at the right-hand side of the slide, €552 million of the management fees, 83%. You can virtually account for the growth vis-a-vis the previous year, 1/3 linked to the growth in assets of our Luxembourg Italian business, 1/3 linked to the growth of our foreign operations and 1/3 driven by the new distribution fee that has been introduced as of 1st of April, and we will see this in a minute.

If I look at the variable fees of €40 million, this is composed of the €34 million that have been crystallized in March this year due to the change of the methodology in the way we calculate performance fees and then €6 million in Q2 mainly linked to performance fees coming from our foreign businesses. And I would point out Brazil in Turkey as the main contributors.

If we look at the insurance line, we have €46 million that compares to €64 million, and this is mainly driven by significantly lower performance fees, which have been not exactly offset by the growth in the recurring business that we have benefited from -- also thanks to the positive inflows that we still are able to enjoy in this revenue stream.

Last but not least, other revenues, just to explain you the increase from €19 million to €28 million. This is mainly linked to two major factors. First, we have had growth coming from Sanctuary. The brokerage business is included in the other business lines. whereas we are also starting to consolidate our acquisitions that have been performed last year in the fintech lending environment as well as in the investment banking activities.

Moving to the next slide. As I was mentioning before, quarter-over-quarter, management fees have gone up by €38 million. This is virtually all explained by the new distribution fee that has been introduced in April. And then we have a good evolution of revenues coming from our foreign businesses that have been partly offsetting the negative market effect that we have been hit by -- as of the mid-May 2022.

Q-on-Q, management fee margins are flat. Virtually, we have lost probably 1, 2 basis points, and this is despite the negative market environment, which have enabled us to maintain a good resiliency in the recurring fee line.

Moving to the cost side. Distribution costs, €237 million, €37 million increase versus the first half and this increase has been a consequence of the revenue growth factor. I would say that this increase is explained by 2/3 of the Sanctuary evolution figures and then network overhead costs that have been impacting this line, especially when it comes to marketing activities that have been resumed vis-a-vis the previous year where we were still in a sort of lockdown scenario.

Personnel and SG&A plus €18 million first half 2020 versus first half 2021. Three main explanations behind this evolution. First, we have €4 million of IT cost increase. This is due to the fact that we are changing as we have announced the front-end system for our Italian network and we no longer capitalize the investments and we are fully expensing this the P&L level given this situation of dual track with investment in the new system and investment in the old system. Then we have the change in the perimeter that is impacting €7 million and the rest is linked to our foreign operations.

Moving to still the detail on the cost side in Slide 11. This is interesting to note how there is a good resiliency in our operating profit margin during first and second quarter 2022, which is basically in line with the quarters in 2021 and 2020 that are not impacted by performance fees, and this typically occurs in Q4, and this is why you see the uplift to 51% and 61% accordingly.

The explanation behind the trend in the distribution cost is also on a quarterly basis is that the new distribution fee that we have introduced is not repaid to the network. And quarter-over-quarter, we are flat in terms of rebate of the management fee to the network. And on the other side, we are benefiting from the positive interest rate effect on the actualization of severance payment and we have some seasonality as far as social security charges recognized to the FAs, which tend to be higher in the first quarter and then normalize over the following quarters in the same year.

As far as the increase in SG&A, Q-on-Q, we have -- as we have mentioned before, the IT costs that are impacting and mainly pantry that is lifting our quarterly trends.

Moving on to Slide number 13, a quick snapshot of the weighted average performance. As I already mentioned, we are benefiting still and a good over-performance vis-a-vis the benchmark, the Italian industry and still clients over the last 3.5 years are net positive in terms of weighted average performance by almost 9%. We are currently running with an equity exposure ranging around 40%.

Slide 14, a snapshot of where we stand in terms of private market, €6 billion total AUM, 10x what we had at the beginning of 2020. And we have 36 products that have been already closed vis-a-vis Q1, we have closed seven products, and we have launched seven new ones. Good to mention here some initiatives in the new products, first and foremost, a product called private escalator. It is basically an accumulation plan on private market products. So effectively a fund of fund, we diversified across asset classes.

We have then launched the second edition of our direct lending product that is instrumental for our neo lending activities. We have also launched the infrastructure, retail share class of our Italian funds. And then some initiatives linked to our presence in the U.S. I would like to mention to you the next-generation fund, which is effectively a fund that does what we do with our prop money in terms of GP staking business and feeding fund of the GPs. And then two initiatives. One is with Kennedy Lewis, with Fund 3. We have a feed -- effectively fee to fund Luxembourg vehicle that will we feed into Fund III of Kennedy Lewis.

And then Broadlight, that is one of the GPs that we have bought into, that is a private equity, consumer private equity fund, 17% of our clients. So roughly speaking, 31,000, 32,000 clients out of our 2,000 clients, active clients in Italy have invested in private market products. And probably €6 billion, 3.3 billion are in Italy, €2.2 billion are in the U.S. and including branches nowadays, we have €600 million in U.K. and Europe.

So today, we are seeing or starting to see a broader diversification in terms of geographical presence as well as -- and I'm referring to the chart on the right-hand side of the top of the page, whereby the infrastructure and real assets is starting to be a material contributor towards the categories that in which we invest with 17% and the rest is 21% in private equity.

Moving on to Slide 15, and I'm very pleased to describe you a bit branches, and I know he's on the call with his team, and I would like to welcome Chris and Co-Founder and Managing Partner of Lancet the Azimut house, 20% stake. They are a leader European real asset manager. We have taken this stake together with Eversource Energy Retirement Plan, Eversource is an energy company listed in the U.S. with a market cap of €30 billion that is starting to recognize our strategy and the capabilities to select very competent managers and in the private market space across a number of different asset classes.

RoundShield has been founded in 2013, has currently €2.9 billion and operate out of a number of geographies, mainly in Europe, with total employees of 44 people. They invest in real assets pan-European. They do things such as social housing and infrastructure, specialty offices, residential, logistics and so on and in a very opportunistic manner. Returns speaks by themselves, and we have been very impressed by the capabilities to repeat those returns, and we will see this in a minute about 23% IRR growth 1.6 multiple on invested capital and 128 exits and zero losses on the 128 exit. We have -- the RoundShield has four flagship funds, and we expect to be able to launch with them new initiatives and to expand the LP's investor base.

Turning to Slide 16. And you see where the investors are coming from, endowment and foundation are a core investor put together with family offices and pension funds, mainly based in U.S., U.K. and also the MENA region.

Moving to Slide 17, what I was referring to at the -- the slide just a couple of minutes ago, and the vintage is very different, but the returns are extremely consistent in the top quartile on a cost as well as on a net return basis. And we are extremely pleased to be able to see these numbers that compares with numbers achieved by [indiscernible] that are behind those figures.

RoundShield does not invest in Italy, and I don't think they are willing to come anytime soon. So it is extremely complementary with our infrastructure ESG fund that we are already marketing to our client base.

Moving on to Slide 19, I leave the floor to Alessandro for the financials.

[Alessandro Zambotti, CFO]

Thank you, Gabriele. As we always do, we go through the consolidated reclassified income statement.

I would say that we spent more than a few slides to explain in details as to what happened this half compared to last 2021 or compare to the quarter-on-quarter evolution. Therefore I will just remark some elements on the recurring fees, we can appreciate the significant growth comparing to the first half 2021.

Big thanks to our staff in Luxembourg, our foreign operations, but also the introduction of the new distribution fees. That is also the key elements for the evolution of the Q2 compared to the first quarter 2022. So the level of the variable fees, the total amount of €40 million for the second quarter, the contribution is coming from the foreign operations. The other part is the quarter has been already crystallized in the first quarter.

At the level of the insurance revenue, the €18 million negative comparing to last half of 2021 is just impacted by the €21 million of performance be less. But on the other side, the participative element that it is that we have a positive contribution in terms of recurring fees or €3 million. At the level of cost, again, this is almost in line with the evolution of the revenues. Therefore, probably the main element to underline is the increase of the IT cost, as we already explained, but then also for the project that we have in pipeline.

Moving to the following slide, we go to, let's say, the operating part of the business. At the level of the finance income, we have a slight impact, positive impact of €2.6 million. This includes fair value auction and dividends from GP minority stake and the negative generalized impact of our own investment of the liquidity that we invest in our fund. At the level of the non-operating cost, we have a positive impact. This is coming from the deconsolidation of Century that we benefit for €5.7 million positive, but that has been offset by the one-off transaction costs.

At the level of taxes, main impact is performance fees and the fact that we cannot have the, let's say, the same -- I mean, the evolution of the regulation at the levels of Luxembourg. Finally, just to look to the net profit and comparing the first half 2022 with the first half 2021, if we take out the goodwill impact that we had last year, we can see that the evolution of the net profit is positive comparing the two years.

Moving to the net financial position. We are positive. At the end of June, we have €[686] million more or less comparing to December '21, that was €[478] million. Therefore, the variation is negative by €[123] million. These were negative variations can be reconcile taking the positive sales tax profit, so €274 million. And then if we take out the impact, so the negative effect of the dividend that is in total €261 million. Tax advance payment for the first half, that is around €68 million and the acquisition closed during the first half that accounts to €189 million -- we are almost there with the valuation of taking as in consideration that with the consolidation of sanctuary and the closing of the deal, we received back financing that we give to the Company of around $35 million.

I'm going to leave back to Gabriele for the last part.

[Gabriele Blei, CEO]

Thank you, Alessandro. So Slide 23, we wanted to just provide you some guidelines on how we will proceed as far as Sanctuary is concerned, given that we will no longer have the full control of the business following the transaction that has been announced a couple of weeks ago. So going forward, only 53% of Sanctuary inflows and financials, financial, we'll see what it means in a minute, will be consolidated. When it comes to assets under management, they stood at €14.6 billion at the end of June, it will be adjusted at the end of the year. And we decided to go for this approach in order not to have to restate the figures in the first six months of 2022 and create some confusion.

When it comes to net inflows year-to-date, €2.1 billion that has been achieved. We will not be adjusting the figure retrospectively. And from July 2022, we will only consolidate 53% of the net market flows coming from Sanctuary. Right-hand side of the page, we have provided you with the average quarterly contribution in 2022 of Sanctuary revenues, cost, net profit, clearly net of the nonrecurring transaction costs and one-off items. So we see that Sanctuary has generated on average €3 million of loss, of which €1.6 million, so 53% accounted for Azimut and the rest to the minorities.

So instead of going on line-by-line of the Sanctuary financials from the 1st of July, we will only share the economic rights and which will be recorded, so the 53% apologies, and it will be recorded within the finance income, so below the operating profit line.

Moving to Slide 24. We wanted to give you a quick overview of where we stand as far as private market development. You see our Italian project on the left-hand side, Azimut Libera Impresa, Azimut investment has been set up in 2019, even though effectively, the first fund was created and launched in 2017, 100% ownership. We do this through greenfield and in-house teams as well as through third-party agreements. We started with €600 million. We are spending at €3.3 billion with a variety of asset slates that we managed out of Milan and Luxembourg.

The rest of the page is comprised of the five transactions completed by our spectacular Azimut Alternative Capital Partners team. We started with Kennedy Lewis in July 2020 and with a 20% stake, currently, the business has €10 billion, it started from 2, and it is an opportunity to take private credit company.

HighPost, the newborn entity that brought together the two family office, Morrow and Bezos, we now have a 12.5% stake. It was -- it has been a first time first team that has collectively reached currently €440 million in the consumer private equity investment pace.

Pathlight set up transaction completed in July 2021, 20% GP stake, €1.4 billion in assets. Today, they spend at €2.4 billion still are in the fundraising phase for their latest product investing in asset-based product lending out of Boston.

BroadLight, April 2022, 10% stake. They are now at €200 million almost in terms of assets under management and fundraising together with them. We have our vehicle -- Luxembourg vehicles and the investment in consumer media and entertainment product space.

Last but not least, RoundShield on which I would not spend further. This concludes the fact that we are at €6 billion in terms of AUM, when I look at the affiliates, they reached €16 billion collectively out as of July 2022.

Just to summarize the last two slides. So private markets, nobody believes us. Nobody thought it was possible. We are now at €6 billion, 10x more than what we had in December 2020, and we are looking to further expand our competencies as well as reach as many clients as we can in Italy and not just in Italy to revisit the asset allocation to generate positive returns in the medium to long term.

Italian presence -- as I just mentioned, we want to leverage on our product capabilities, try to bring out as much efficiency as we can out of our network. We're probably one of the very few examples in the world and certainly the leader in Italy to offer private market products to retail customers through our own distribution channel. Just 30,000 out of the 200-plus clients, 1,000 clients have invested in our private market solutions.

Internationally, we are continuing to develop our strategic partnership, we continue to work to integrate further our product offering with our distribution channel, leveraging on our positive history of what we have achieved in Italy and not just in Italy, and we aim to achieve our long-term goal.

Targets, we are here to confirm the €6 billion to €8 billion net inflow target as far as distribution activity is concerned. And the €400 million net profit target is confirmed on the assumption of clearly normal market conditions, but leveraging also on the €202 million that we have achieved so far.

In Slide 26, you just see a snapshot graphically of where we stand in terms of results vis-a-vis the two targets, but I would say that it is self-explanatory.

Thank you very much, and we are happy to take any questions.

[Operator]

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

[Lam Hubert, Bank of America]

First question is on the buyback. You mentioned -- you announced a $75 million buyback. What's the timing of that? And also, what's the rationale behind it? Just wondering if there's an opportunistic buyback. And if -- and when you do the buyback, are you upon on cancelingthe shares or you plan on building up the share part of your treasury and to keeping that treasury, what you can do with that? That's the first question.

Second question is on the fulcrum performance fees. Given your strong outperformance year-to-date, what would -- if the month -- the quarter ended today, what the VA performance fees you'll be getting from these Volcan performance fees just to kind of get a sense of the magnitude you would expect from these days going forward?

And last question is on the cross-selling of your products into your growing distribution network. Can you just talk about any progress as you've been seeing so far year-to-date? What are your targets and how you plan on increasing your penetration in terms of cross-sell there?

[Gabriele Blei, CEO]

So let me take the first one, the buyback. Well, it is not different from what we have always declared and done in the past. We have been looking at the evolution of our share price and the market environment. I remind you that in April, the AGM has given us the approval to buy back shares up to a share price of €35 per share. So the rationale is to always try to create shareholders' value to be looking carefully of the valuation of our company, the results that we are able to produce. And then if and when we can be adding value to shareholders, we will take this opportunity.

As in the past, we have canceled shares. We have built up treasury shares, and we have used them either to pay dividend or in M&A transactions. So all the options are open on the cards are on the table, and we will clearly update you as we execute the buyback. For the time being, it does not have any limitation in terms of timing. So we will monitor the market and eventually start buying shares on the market.

Truthfully, unfortunately, the quarter doesn't end today. And therefore, I would not speculate on the performance fees that we could generate or the giveback that we might need to give back to clients. Certainly, it's a more volatile environment. Certainly, some of our products are performing extremely well in this environment and other products are in line with the benchmark. So we don't expect, though, to have a material impact from the fulcrum if the quarter would be ending today, just to give you a sense, but I would leave it to this in order not to give too many speculation across this item.

Cross-selling, we are working quite strongly on this. We are trying to discuss with our distribution entities. As you know, the Sanctuary transaction has, in a way, absorbed most of the management team's time not just by growing the business and managing the day-to-day, but also on the transaction itself. So we had to, let me say, not distract them too much during this last month vis-a-vis the cross-selling.

Having said that, the alignment with Kennedy Lewis, given that they're coming from the product side is very strong. We think we will be starting over the summer to too the main teams and distribution partners that we have in order to roll out a plan to further penetrate the distribution system with our product solutions. Needless to say that this applies to all the countries in which we operate, starting from those in which we are fully integrated, such as Turkey, and other markets in which we're starting to be more penetrated, such as Singapore to just mentioned to market or Brazil, where we are seeing a good evolution of the acceptance of our products within the [indiscernible] network based on the agreements that we have completed last year.

[Operator]

The next question is from Giovanni Razzoli with Deutsche Bank.

[Giovanni Razzoli, Deutsche Bank]

The first one is a question on the interest rate environment. There will be discussions out there about the sensitivity of the banks and of your PS about it. Clearly, you are not running a bank in vision. So there's no direct impact. But I was wondering in terms of commercial performance and commercial strategy, how the change in the interest rate environment main part this. I think it may give you more options that we advisor to offer new services and your advice. So if you can clarify a little bit on this, that would be flat and whether my understanding is also correct that you don't have any directional exposure to rate and to NII.

The second question is on the decision to dilute your stake in central. And the third opportunity we have to discuss about it. First of all, I'm just wondering whether you will keep a 53% stake or whether we will land to a lower stake, and secondly, a clarification was that the second quarter results as your CFO was indicating already exclude line-by-line consolidation of sanctuary or not? Because it seems to me that you mentioned that it will be consolidated from the 1st of July.

And then finally on this, what was the rationale for this strategic review or vision of your position in Sanctuary? Was it expected? What is the rationale behind it? And two clarifications. Allow me for this. Can you provide us with an update of the inflows in Italy a month today, if you could also give us color on it?

And the very last question, I don't want to be provocative, but I've read somewhere that you have planned or to let a such as on the association of mutual funds here in Italy. I was wondering why and what is your reason behind that and whether this is correct or not?

[Gabriele Blei, CEO]

So on the interest rate environment, clearly, you're right, we're not a bank. We don't have a direct sensitivity as banks do to increase decrease of interest rates, clearly working with investing our client money we do have an indirect sensitivity in the sense that working in an environment with higher rates help us covering the cost of the product themselves and then try to generate additional performance. Clearly, if this increase in rates is generated not in line with expectations or at the speed in which the market is expecting that it creates volatility and is impacting us and the macroeconomic environment.

As far as the commercial activity is concerned, it is exactly -- I mean, it's what we have been telling for many, many years. We need to revisit the asset allocation of clients, and we need to diversify even more. This is done through the diversification of products as well as the leverage of -- on the colleagues that contribute to the global investment team and to the sharing of ideas and creation of new products.

I know it does not have a material feeling for you guys, but working within Azimut is somehow different when you are a portfolio manager because you have to talk directly to your distribution channels. And you can be free to talk and share ideas as well as to bring to a stable product innovation that may be useful for the clients and the distribution network at any point in time. In the past, during market uncertainty, volatility or changes in the macro pictures, we have taken the liberty to innovate and bring to our clients some product solutions contingent to the situation. So we did not exclude the need if there is going to be some opportunities to do so again.

When it comes to Sanctuary, there were a couple of questions here, 53% lower, 53% is the stake today. And then effectively, if there is going to be the conversion of the convertible done, the stake could be lower. We do not want to assume or make scenarios because there may be multiple scenarios that we cannot govern directly. So we just stick to the 53% and effectively on conversion, it can be lower.

Let me answer you the rationale and the strategic decision. So because it's very tied into the percentage ownership that we might end up having. As we try to tell you, we are in a phase in which we need to extract value of our foreign business, not that we did not have this priority in the past -- but after 10, 11 years of evolution investment, building up of production and distribution centers across the globe, we now need to demonstrate and show you that what we have been imagining could turn out into a profit contribution over the long run. This is done through the delivery of industrial projects that produce consistent, sustainable, growing profit contribution to the group.

So we have been actively managing in Brazil and in the U.S. through sanctuary, our stakes because we felt the need to -- that there was an opportunity to accelerate the growth rate and there was an opportunity to partner with somebody that could actually give us higher chances to achieve our long-term objectives. So this is the strategic rational of the thinking within the management team. And the idea that it's better to have a smaller piece of a cake that is much larger than just by owning everything ourselves and fighting all the difficulties by ourselves.

2Q is absolutely not -- it does not take the profit or loss at the bottom as the operating -- below the operating profit, but it's still on a line-by-line consolidation basis. So there is no -- it's not yet in the Q2 numbers, just the operating result of Sanctuary.

[Alessandro Zambotti, CFO]

Just to clarify for the misunderstanding, the point is linked to the fact that we signed the agreement at the end of June for the 30th of June, and therefore, for the accounting principle, we consolidate the account line by line. But then due to the fact that at the end of the day or the end of June, we lost the control, then we also performed the deconsolidation of sanctuary. So taking in consideration the asset and liability elements linked to sanctuary then we booked in the P&L, the €5.7 million that I mentioned before of positive effect. This is the reason why it's a full line-by-line quarter and then also the consolidation.

[Gabriele Blei, CEO]

Then Italy flows, we have been positive month after month as far as our retail network is concerned of financial advisers. There has been some volatility within our institutional that we did not hide to you guys, we see up until June north of €650 million as far as the retail network is concerned, and this figure is going to go up if we will be including the net the floors that so far we're seeing in the month of July and which will be published in first week of August.

Assogestioni, yes, we have read correctly, we have decided to leave Assogestioni. There is no battle behind, but just a simple consideration that we did not feel that we were represented as far as the numbers are concerned, correctly and appropriately given the evolution that the group has had over the last 10 years. That's the simple answer.

[Operator]

The next question is from Alberto Villa with Intermonte SIM.

[Alberto Villa, Intermonte SIM]

The first one is on the private markets. Thanks for Slide 24 that put everything into perspective. I was wondering if you can give us an idea of what is the amount you invested so far in the partnership you have been underwriting in the last couple of years?

And secondly, I was wondering if you can help us understanding out of this €6 billion of assets, how should we model the contribution going forward into your numbers? I understood that you have had some dividends from the general partnership going into the financial income. My question is, should we expect in the future to have more direct, let's say, impact in other lines of businesses. Is that related to the, I think, the product you are distributing in Europe and so on. So it would be double on into the management fees and another one into the dividend. Is that correct going forward? This is my first question.

And the second one is on the on the reconciliation of the cash at the end of the first half, I probably missed what you have said during the presentation. So if you can just give me the reconciliation you mentioned before. And finally, on the inflows. I understood you had more than €600 million on the retail in the first half. It looks a little bit lighter compared to some other networks in Italy. I was wondering if this is partially due maybe to the focus on private markets, the network has to transform clients' assets into private markets if that has been one of the reasons maybe behind the net inflows we have seen so far?

[Gabriele Blei, CEO]

So the amount invested in private markets, it's north so far. It's north of €100 million on the five transactions. Dividends from the GP stake and the way we account for, you have to consider that just split the private market initiatives into the Italian Luxembourg initiative and the GP staking business. The first one is in the revenue line because it's 100% owned. And it is, for the time being, just on the management fee side, so the recurring revenues, if and when we will have carried interest, there will be contribution to the performance fee line.

The GP facing business, given that this minority stake, and so far, it's going to remain a minority stake is going to be and is already below the operating line. Net financial position, Aless.

[Alessandro Zambotti, CFO]

Yes. The negative variation that I mentioned is €123 million. So if we compare December '21 with June '22. So taking in consideration this variation, starting from the pretax profits of €274 million, I take out the dividend paid in the first half, so €261 million, let's say, considering the dividend and the financial instruments, dividend paid. So then adding the tax advance payment again of the first half, €68 million and the acquisition of €109 million in Italy and abroad.

Then on the positive effect of €35 million due to third part with the transaction of sanctuary, they give back a portion of our financial that we bring to them at the beginning. We are normally the sum of the -- this amount is going to give you the difference.

[Gabriele Blei, CEO]

And then lastly, on flows. I think our retail numbers on a monthly basis do not reflect the full activity that the network is achieving on a month-per-month basis. simply because if you look at the product market initiative, there is a commitment that is given and then the closing of certain of the funds happens a month later when we reach a certain target or we close the share classes or the funds themselves. So I think the comparison with the activities of the network is not exactly a full representation of the commercial activity.

On top of that, I always want to stress and remind that we are focused on managed products, and we do not have and do not want to have banking products or current accounts where we get flows from our client base. We always try to distinguish ourselves by being the trusted adviser and the managers of our client savings.

[Operator]

The next question is from Angeliki Bairaktari with Autonomous Research.

[Angeliki Bairaktari, Autonomous Research]

What is the amount of assets under management, if any, from your own clients who have placed money with your affiliates in private markets in the U.S. I'm trying to figure out, out of all of the AUM that your U.S. affiliates have, how much of that, if any, could be coming from distribution via as in it channel at the moment?

And a bit more general, what is the process and how easy is it to actually see a fund in your U.S. private market affiliates? Is it a question of setting up a feeder vehicle here in Europe. If you can explain to us how is your complicated this for you to effectively channel, for example, Italian clients money into Kennedy Lewis or the other U.S. players?

And last question with regards to Brazil. Can you give us an update on the operations there? Where do the assets under management stand today? And how have the net flows been in the first half of the year?

[Gabriele Blei, CEO]

So AUM brought to our affiliates from our client pool today stands probably north of €200 million, and I would -- could be probably closing to €250 million based on the latest figures we have. And given that we are in fundraising on a number of different products that will be investing into products that are managed from our affiliates -- this figure is expected to increase in the coming quarters.

How it works, basically, especially for our Italian clients is that we typically launch what is a European long-term investment fund, so the LTIF vehicle or RAIF product for some more professional investors and institutional investors, given the higher threshold of minimum investment. And we then fund raise during these -- on these products from our Italian/international clients. Then the money is then channeled to what is what you can call as the master product that is the U.S./Cayman/whatever it is product and then everything is managed accordingly to the strategy exactly in the same way, okay?

Then an update on the Brazilian operations. Well, personally very surprised that during an election year in Brazil, there is clearly not the type of volatility that we've seen in the past. This is probably partially due and offset by the fact that Brazil is a country that export raw materials significantly and in -- during this period, it is clearly benefiting the country as far as the economic activity is concerned. What we have been seeing from a macro/interest rate environment perspective is interest rate has gone down to, say, 4%, 4.5%. And then in the last year, they have reversed and went up again double digits and are now standing 12.5%, 13%.

So clearly, this has had an impact in the asset allocation of Brazilian clients that have tended to prefer fixed income instruments vis-a-vis equity instruments. The consequence of this has had -- has been a shift in terms of mix and a lower recurring management fee that we can generate out of our Brazilian operation. I have to say that over the last couple of months, there has been a significant activity in terms of flows into strategies different from fixed income and equities, favoring something like macro and long-short strategy. So this is going to clearly benefit the margin as I just mentioned before.

And as far as the flows and the assets, we now have €4.6 billion up to June in terms of assets under management in Brazil, and they have collected more than €300 million, and I suspect this figure could go up to €0.5 billion at the end of July.

[Angeliki Bairaktari, Autonomous Research]

Are those amounts in euros or in dollars?

[Gabriele Blei, CEO]

All in euros.

[Operator]

The next question is from Elena Perini with Intesa Sanpaolo.

[Elena Perini, Intesa Sanpaolo]

Yes. Well, I've got only one question. It is related to your Slide number 9. I was favorably impressed by the resiliency of your management fees because it is true that the €295 million of the second quarter include €35 million new distribution fee, but you were slightly up versus the first quarter. So I was wondering if you can elaborate maybe on this point, considering that I was not able to follow the first part of your call.

[Gabriele Blei, CEO]

Elena, no worries, I'll try to summarize what we have mentioned before during the presentation. So in Slide 9, we were showing how the management fee line is -- has been growing $38 million Q-on-Q. And this is clearly more -- the vast majority is explained by the increases coming from the new distribution fee that we have told you about that would have been accounting for €35 million per quarter. But even excluding that, we have been impacted by the growing activity and management fees coming from our foreign operations, which have helped to contain the negative market effect that has impacted us as anybody else from mid-May.

All in all, excluding the new distribution fee, the Q-on-Q evolution of the management fee is basically flat to 180, 179 basis points. So as far as what we have been living in the first half, there has been a good activity -- commercial activity vis-a-vis clients with limited mix impact on our margins and a focus on private markets that is not reducing the overall average fee line. So all in all, we are kind of pleased with what the commercial activity has been delivering.

On the other side, there has been the positive performance or the over-performance vis-a-vis the benchmark that is clearly supporting the commercial activities as well as maintaining clients, reasonably come and invested in the product.

[Operator]

[Operator Instructions] There are no more questions registered at this time. Back to you for any closing remarks.

[Gabriele Blei, CEO]

Not really no closing remarks. Just thank you very much. Myself and my colleagues remain available for any follow-ups, and we wish you a pleasant summer. Bye-bye.

[Operator]

Ladies and gentleman, thank you for joining. The conformance is now over. You may disconnect your telephones. Thank you.