Azimut Holding SpA

MIL:AZM

Earnings Call Transcript 2020-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Holding 9 Months 2020 Results Conference Call.

[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, executive]

Thank you very much, and good afternoon to everyone. So as always, we'll go through the presentation, and then we will leave you all the time for question and answer. If you take Slide #4, there is just an unusual way to start the quarterly presentation where we wanted to signal how, probably, there has been a convergence in terms of the expectations vis-à-vis our stated target that we reiterated at every occasion during 2020, although the macroeconomic picture was not ideal to provide targets.

We kept the target unchanged throughout 2020. And we have seen numbers going up and down as far as consensus is concerned. So probably, this is another confirmation, if required, of the capability of the company and the people that work every day within the company to achieve what we say in terms of numbers.

Needless to say that probably we've done such an erratic movement. I wonder whether is convenient, if not useful at all, to provide with long-term targets as far as the forecoming business plan is concerned. Moving to Slide #5, the highlights of the quarterly results.

In 9 months, EUR 230 million of net profit, EUR 168 million of recurring net profit, above the EUR 50 million target per quarter that we set back at the Investor Day, almost 1.5 years ago. Recurring management fees have been back to pre-COVID levels, and we have seen resilience in margins also during Q3.

Needless to say that we have reconfirmed and we are reconfirming the EUR 300 million target for 2020. As far as the international expansion is concerned, we have continued to diversify away from our domestic market, not that we don't like to have solid grounds in Italy, but we need to diversify our geographical exposure, and we believe this has been the right choice throughout the past years.

We have invested and we are investing in foreign markets to sustain the future growth of the business. And in this -- with this in mind, we have done an acquisition in the U.S. of Sanctuary Wealth, which we will see later of an independent wealth management platform with $7.4 billion, which would bring the international assets over total assets to 35%.

Private markets, we have seen an ongoing activity throughout the year. Needless to say that it was quite challenging not being able to visit or meet face-to-face clients, but we have reached so far EUR 1.9 billion, and we are continuing to diversify in terms of products and we are launching -- or we're expecting to launch new funds and new investment solutions in the coming quarters.

On EUR 1.9 billion so far, EUR 2 billion target that we have set and is confirmed once again. Turning to Slide #6. The financial results, the revenue and margin are reflecting the focus on quality. We have achieved EUR 252 million of total revenues. Of that, I would say that almost 90% is coming from recurrent or nonperformance fee-related revenues.

This is an increase of 6% vis-à-vis the EUR 238 million in Q3 2019. And as far as management fees is concerned, we have achieved EUR 194 million in the quarter with a stable basis point trend of the recurrent margin. Don't -- bear in mind that in Q3, probably what should not be forgot is the fact that in Q3, assets have increased by EUR 400 million due to the consolidation of Genesis in the U.S., but we did not achieve any management fee in Q3 for that. So probably the best way to see the margin evolution is to net this effect of the consolidation of the assets.

Page 7. Costs have been under control for some time now, and we are looking to maintain and continue this disciplined approach. EUR 85 million are the distribution costs, down from last year and account for 59% of the total cost. As far as SG&A are concerned, they increased from EUR 47 million to almost EUR 52 million, but this is mainly linked to the M&A activity that we have done over the last years.

If you see on the right-hand side, you have the trend quarter per quarter of the SG&A line, and you see how this has been basically flat throughout and quite boring throughout the couple of 2.5 or, if not more, years with the increase of assets up 15%.

Slide #8, inflows have been positive during the 10 months of 2020 with EUR 4.1 billion. Of that, EUR 3.3 billion are organic. And EUR 1.3 billion are coming from private markets. The M&A activity is what I was referring to of EUR 800 million. The group has achieved with the consolidation of Sanctuary Wealth, the highest level of assets under management ever.

Sanctuary will be consolidated starting from end of the year, beginning of 2021 because of the regulatory approval that is required. But we have EUR 63.5 billion of assets under management. And nice to say that 3% of that is coming from the alternative project that we are deploying.

Slide #9. This is a bit of a snapshot of the products that we have developed in the private market segment. It's quite astonishing of the range and the array of products that -- and investors have access to in such a short period of time. The target by year-end of EUR 2 billion is confirmed, as I said before. And consider that in these numbers, you do not see a couple of funds that are under committing on the raising -- sorry, on the raising phase, which are going to be consolidated starting from, probably the month of November, if not by year-end.

On the following slide, the pipeline of what we are doing as we have mentioned in the past, we have an infrastructure fund that is in the fundraising phase. Fundraising is going well. I would say that we expect to close or to reach the first closing by year-end. And we're expecting between EUR 300 million and EUR 350 million to be collected.

We have other 2 products, Ophelia and Capital Solutions, the ones that I was mentioning before that are in the fundraising phase and are interesting because they are in line with the PIR alternative legislation, which we will see in a minute.

Many other products are underway, especially to -- linked also to the activities or to the minority stake that we took in Kennedy Lewis in the U.S., and we will be launching funds with their corporation shortly.

Turning to Sanctuary Wealth. On Slide 12, you see a snapshot of what is the transaction, 55% is the stake that Azimut will be buying in the company. There is a primary issuance that is reserved to Azimut. And therefore, money is going to flow into the company to finance the business plan. We have a long-term commitment from the management team and the usual put/call option agreement by which, in the next 10 years, we will be increasing our stake up to 100% of the company.

Why did we do it? Simple. We wanted to recreate the integration also in the U.S. of production and distribution, probably, it's not as easy as would have been in other emerging markets or in Italy. But we are trying to focus on the high-end part of the spectrum in terms of production for the private market segment for the time being.

And with the addition of Sanctuary, we will be developing our proprietary distribution in the U.S. Turning to Slide 13. You see how the U.S. presence is quite vast by now, 75 employees, $9 billion of assets under management, 23 investment professional and the 140 financial advisers. These are split between the distribution, as I was saying, which -- where you see is Sanctuary, which will be shortly consolidated. And the other 2 companies that -- with which we started the presence in the U.S., AZ Apice is the first one, and then more recently, Genesis with the addition done, completed in September.

On the right-hand side on the private market segment with the Azimut Alternative Capital that shows the first -- acquisition of the first GP in the private market segment, Kennedy Lewis.

Turning to Slide 14. Sanctuary Wealth, what do they do? They are trying, and doing it quite successful as you can see from the graphs, to aggregate independent advisers that basically falls out from the traditional model. And they are looking to partner with Sanctuary because of their independence and because of their support in developing the assets. This is mainly a tuck-in driven business model.

So the more advisers they're able to hire, the more assets would grow. And the more we are going to be able to -- may shorten the distance between our production and their distribution, the better the margin profile. Clearly, the perspectives are quite interesting because if you look around some statistics, there are -- the wealth management industry in the U.S. will undergo major changes with expected EUR 2.4 trillion assets on the move.

We will have to be good enough to intercept a portion of this massive shift from the traditional model to the independent distribution model. On Slide 15, the key characteristics of the target advisers. They generate the bulk of the money through recurring fee. They want to clearly look for independence, and they want to be in charge of their clients and try to be able to develop the book of business through a number of different ways.

The destination of the advisers that are falling out of the traditional model, you see this and the independent portion is 44% we are clearly showing how Sanctuary has interesting growth opportunities in the future. On Slide 16 -- sorry, 17, we wanted to update the net weighted average performance that we have delivered to clients. If we consider 2019 and 2020, we are up 7%, the client that invested money with us on the first of January 2019 is making 7% year-to-date.

Whereas, if I look at the weighted average performance net of fees of 2020 only, we are around -- we're down something like less than 1% or around 1% depending on the day. How this has been possible? We show you a number of examples in the following slides. So starting from Slide 18, where you see a couple of funds, mainly allocation funds that have been able to navigate quite well during 2020. Dynamic Fund is an EUR 800 million fund and the balance fund has EUR 750 million, so a total of EUR 1.6 billion almost.

We wanted to also update you on what we're doing in our life business on Slide 19, where we have been revamping the business with the 6 commercial families of strategies. And this is instrumental also for the development of the life insurance business going forward as far as the embracement of the real economy and therefore, the private market initiative in the future.

As far as we are today, total assets across these strategies in AZ life -- in Azimut Life, sorry, account for EUR 6 billion of assets under management. Following on the products, the global team, which is something we have discussed -- started to discuss back at the Investor Day a couple of years ago is more and more a reality.

We have been launching a couple of new products, and one of this is the equity China fund which has collected EUR 300 million of assets under management and competes quite well vis-à-vis a very renowned names across the industry. On Slide 21, a product snapshot on the Egyptian initiative. This is an interesting thing because we launched the first ever retail fixed income fund in Egypt, launched in October 2020, and it starts distributing and basically limiting what we have been doing in Turkey with launching retail funds in the local market.

We're doing the same here in Egypt, and we are the only one doing this. And so far, the initiative is going on well with EGP 50 million collected so far. What I was referring before on the PIR alternative is the initiative that we launched in September this year. This is -- we called it internally PIR Box. It's a container that allow individual clients to fully benefit from the fiscal advantages of the Italian Alternative PIR directive which basically tells you 2 things. You can invest up to EUR 1.5 million for at least 5 years, up to EUR 300,000 per year. And you basically pay no taxes and capital gain and inheritance taxes.

So this is something interesting that we have and anyone can have, but the difference with the competition is that we have the products already compliant and already raising assets. Therefore, clients can already start to invest through the PIR Box and benefit from the fiscal advantages.

Slide 23, stronger diversification is what we were looking for in a 0 or negative interest rate environment, and therefore, the launch of the private market initiative, which has then been followed by others.

We are now well positioned with EUR 2 billion almost of assets under management and 80% in Italy and 20% in U.S., thanks to the Kennedy Lewis acquisition. Slide 24, the usual trend, we are overperforming the industry, but I would not spend time to comment this slide, and I will leave the floor to Alessandro for the financials. Yes.

[Alessandro Zambotti, executive]

Thank you, Gabriele, and good afternoon, to everybody. We can, as usual, look to Slide #26, where we have the consolidated reclassified income statement. As you can see, and as we already said at the beginning of the opening of the call, the third quarter 2020 closed with EUR 87 million of consolidated net profit, EUR 12 million above the third quarter 2019, despite the fact that we had EUR 3 million less in variable fees, but we have a positive and significant increase in insurance revenue.

A better, let me say, evolution of the operating cost that reduced by EUR 6 million. And therefore, the operating profit reached a difference -- positive difference compared to the third quarter 2019 of EUR 20 million. We are looking also to the 9 months, you can see that we reached EUR 230 million of net profit, EUR 16 million less compared to the 9 months 2019.

But again, here, you can see that the significant variation can be allocated to the variable fees, where we have a difference of EUR 50 million compared to the 2019.

Back to the total revenue and focusing on the third quarter, you can see that we have a positive difference of EUR 1 million on the recurring fees. This achieved even if we have EUR 1 billion less in terms of assets under management. It has already said, variable fees decreased by EUR 3 million. A positive variation we have in other income.

This is also coming from advisory activities and M&A and corporate finance business line that we are developing internally and in particular, this year, it's contributing positively to the result of the group. Insurance revenue increased by EUR 12 million. This is million played by EUR 10 million of variable fees and EUR 2 million of increase in recurring fees. At the level of the cost, distribution cost decreased by EUR 12 million. This is explained by the new amortization of [indiscernible], we already talked about this in the last quarter call, this used [indiscernible] bring us a positive effect of around up EUR 4 million, EUR 5 million.

And on top of that, we have benefited from less cost linked to marketing context activities on the, let me say, financial adviser. This is mainly in Spain. I mean, it's simple to say that it's due to the [indiscernible] situation. And moving forward at the personnel and SG&A cost, we can see an increase of EUR 4 million, which is explained by the evolution of [indiscernible] Group. But this is [indiscernible] to underlying, as Gabriele said before, that we are stable, let me say, quarter-on-quarter in 2020. And I think that this is a positive message.

Moving forward, at the level of the interest income, we have a positive impact of EUR 2 million. Here, we are recovering generalized loss on our liquidity portfolio. Where we invest the liquidity of the group with a positive effect of EUR 3.3 million. And netted by a negative impact of EUR 1.5 million coming from the fair value option valuation. I would say that I have no other, let me say, significant element to raise at the level of the consolidated income statement.

We can move to the next slide where we have the net financial position. Comparing the negative level of the net financial position, we can see actually way a better evolution compared to June 2020. And if we compare with December 2018, we are negative in variation of around EUR 100 million.

This is a valuation that can be explained, adding, obviously, the net profit of EUR 230 million. But at the same time, we have to reduce EUR 45 million of the buyback. EUR 138 million on dividend paid last quarter, EUR 48 million of tax advance, EUR, [ 37 ] million of M&A activity and EUR 70 million coming from other investments that cannot be included in the cash and cash equivalent. This is the explanation, more or less of the valuation that we have. I'll leave back to Gabriele.

[Gabriele Blei, executive]

Thank you, Alessandro. So summary and outlook. In terms of Italy, we are, as you are focusing on the real economy and the fiscal optimization that we can achieve through the PIR Box. This is something that we'll be generating existing and new clients, and we will link for a longer period of time, clients to the company, also thanks to the investment in private market funds. Recruitment is ongoing. Certainly, 2020 will not be remembered as the year of recruitment for anybody, but we have been able to achieve 76 new colleagues throughout 2020 so far.

Digital operations are fully functional as it is the case for sometime, as you know, the pandemic in Italy has started again as of the beginning of I would say, mid-October, most of the people are back to smart working in a hard way to preserve their health and to make sure that the operations are fully functional. We are completing ultimate investment product revamp by year-end.

And therefore, in order to anticipate potential questions, we will be finally switching the remaining funds to the new performance fee calculation with first of January 2021. International, we are focused on 3 things: distribution. We need to focus on developing our proprietary distribution channel made of financial advisers and making sure that they can grow their assets and they can become more and more profitable, also using our own production. So we will be leveraging more and more on the global team, and the launch of new innovative solutions.

Private market is very much in the rollout phase at an international level as well as on the Italian side. And we will be updating you in the coming quarters. Private markets, as I was just saying, reached EUR 1.9 billion. If you didn't understand, we are on track to reach EUR 2 billion by year-end, if not surpass that threshold. We are actively investing in real economy with more than 10 funds across a number of asset classes, and we are going to shortly close or reached the first closing for our infrastructure fund.

Going forward, EUR 300 million is once again, unfortunately, confirmed. New business plan, we will be thinking, and we're working on it. As I said at the beginning, probably not the best time. And given the reception of what we say, probably not as urgent as one may think. We are consolidating the presence in Italy as a key innovator, and we keep on focusing on the integration of production and distribution. Strong effort is to improve the profitability overseas as well as retaining the profitability in Italy.

And we will be looking to continue the integration between the production and distribution. So the model that we have applied for more than 30 years is still very valid, and we still want to pursue our growth across those lines. Thank you very much, and we'll leave you the floor.

[Operator]

[Operator Instructions]

The first question is from Domenico Santoro with HSBC.

[Domenico Santoro, analyst]

I do have a few questions. And at the end, a recommendation suggestion, if you allow me. The first question is on the distribution cost. So if I add back the EUR 5 million market income, campaign expenses, you're running with 47%. You're down again in the quarter at 46%. I was just wondering whether you can give us a bit of guidance, going forward, if this is sustainable? The consensus is around a bit more pessimistic for next year, 47%. And if any recruitment of financial advisers back, it might change a little bit this ratio.

The second question is on guidance on the cost, administrative expenses for next year. This year, there was, of course, consolidation. The third question is, if you can give us a bit of color on the rollout of the remaining portion of AUM on the calculation of performance fees? And then also an update on the increase of the stake by Timone?

And then a recommendation, if you allow me. The international expansion, I get a lot of questions on this by investors. It's a big chunk of your total assets at this moment. But we don't know much about how the international business is contributing instead to the P&L. So more color on this, a bit more visibility on the way it does and on the P&L, it will, of course, give us more visibility on the business.

I know there is a lot of affects that might mess up with the numbers. But it's just a suggestion on my side.

[Gabriele Blei, executive]

Domenico, any recommendation is well received and are very precious for us in terms of how we can improve our communication to the market and understanding of our business and the strategy. Needless to say, and I'm sorry to remark this, that I'm referring to the first slide of this presentation. There is probably a recommendation that we are also making to you guys as far as the community, when looking and assessing and expressing your opinions, because sometimes, probably these are not fully reflected on the work.

I've been an analyst, I know how hard it is to take views, and strong views, so I do not absolutely criticize your job because I know exactly how hard it is.

As far as the distribution costs are concerned, the guidance and the outlook for this line is quite challenging because, clearly, this year has been -- putting aside the change in the accounting treatment, has been reduced in terms of marketing activity and recruitment activity.

So if you recall from our Investor Day, the 40% of the cost of this distribution cost line that are manageable because they do not depend on the rebate of the 40% of the fixed management fee is something that has reduced the cost line also this year. Clearly, we hope and this -- and our hope is, because we will be reverting back to a more normal scenario for everyone. And because we will be able to continue to grow our business to revert back to some kind of normalized trend where we recruit advisers, and we can invest in some initiatives.

On the flip side, I think this 2020 has gave us a lesson on making good use of the cash flow that we generate and making sure that this is spent in a wise and careful way to set the base for sustainable profit and sustainable margins.

We do not intend to limit the capability of the company to grow and therefore, to invest, but probably a bit more care in the way we spend the money is needed, and there is a precious lesson that is 2020 has given to us.

SG&A line, the guidance. If I can bet on the guidance today for 2021, I would say, putting apart M&A, I will be looking to maintain a stable SG&A line. So without the perimeter change, we're not looking to make cost increase over 2021. On the contrary, we have set the base for -- in the coming years, for some cost containment on this line, but it's a bit too early to speak about this.

Rollout of the performance fee calculation, as I said, by year-end, all the remaining funds that are currently applying the old system of performance fee calculation will be switching to the new system from first of January 2021. So we will have -- we will not have any more, from 2021, the performance fee collection on a monthly quarterly impact in terms of results. And therefore, going forward, we will probably discuss about performance fees only during the full year presentation results when we will know exactly how much we will have been generating performance fees.

Timone and the management buyout is ongoing. As we said in the past, the intention is to carry this out at a very opportunistic approach, and we are waiting for them to complete the building of the stake that we are required to buy. I remind you, it's EUR 30 million of equity and EUR 30 million of debt for a total of EUR 60 million of acquisition that we need to buy on the market.

[Operator]

The next question is from Hubert Lam with Bank of America.

[Hubert Lam, analyst]

I've got 3 questions. Firstly, on the insurance revenues. There were EUR 29 million in the quarter. It's probably a little bit higher than I thought it would be. How much of that is performance fees in that number? How much of it is recurring? And what -- I don't know how sustainable could that be in the future? The second question is on Sanctuary. Thank you for the overview on Sanctuary. It's quite interesting. Can you let us know how profitable Sanctuary is today? And what are your expectations of profitability in the future? When do you expect it to start contributing to your earnings? And also is your acquisition of Sanctuary also to cross-sell Azimut products into that channel?

And last question on the dividend. How should we think about the dividend now into -- for this year when you report in March next year? Do you think you can -- can you maintain the same EUR 1 dividend or it could be higher? Just any thoughts on dividend for us would be appreciated.

[Gabriele Blei, executive]

Thank you, Hubert. As Alessandro was saying, insurance revenues have benefited in the performance fee element by EUR 10 million. And therefore, how sustainable this is, is actually hard to say, but it very much depends on the capability of the product to generate performance fees. Actually, we are quite pleased with the performance of the insurance products this -- even this year. So fingers are crossed, and hopefully, we can repeat this many times in the future.

As far as Sanctuary is concerned, the cross-selling is clearly going to come through the capability to bring together Sanctuary or closer together Sanctuary with all the production initiatives that we have been we are investing in the U.S. as you very well know, selling usage funds in the U.S. is quite impossible, it's actually forbidden. And therefore, you have to have very complex structures in order to allow U.S. investors to access European investment funds. We will be thinking certainly on different ways to make cross-selling capabilities, a reality.

But for the time being, the focus of the cross-selling is mainly through the private market segment. As far as the profitability is concerned, this is a high-growth company in terms of assets. It has been established 2.5 years ago. So we will be looking to see strong profit generation starting from 2021.

So at the present time, profit has not been the focus of the management because they had to build at scale but clearly, by building scale with a very well-structured and engineered strategy. They are ready to take the benefit of their initial investment.

And to this end, it's quite positive, I would say that the fact that they are not cashing in, anyone is not cashing in, and we are just pulling in money into the company to develop the business further. As far as dividend is concerned, I would hide in a political answer in saying, it's just a bit too early to say. I don't expect any reasoning on the dividend until we will be closing our full year results.

Although as you can see from our numbers, cash flow generation is quite strong, it has been quite strong throughout the year. We do have a debt position that we have to repay at certain time in the future. We have investment that we continue to finance through the cash flow generation. And certainly, we will be looking to remunerate investors with dividend payment.

The dividend payment that we did in 2020, thanks to our structure, which was not falling within the limitations imposed by the Central Banks in Europe and in Italy. So dividend is certainly important for us and to make sure that investors have a proper remuneration out of their investment, which is beyond the appreciation of the shares but I would say just a bit too early at this stage.

[Operator]

The next question is from Elena Perini with Intesa Sanpaolo.

[Elena Perini, analyst]

Yes. I've got 3 questions. The first one is about the performance fees that you gathered in October, if you can give us the amount and then the second question is on distribution costs, EUR 85 million in the quarter, it was below my estimate. I was wondering whether this could be considered run rate for the coming quarters. And then finally, a follow-up on your G&A, can we assume a quarterly run rate between EUR 50 million and EUR 55 million in the next quarter? You were saying that with the constant perimeter, you would not expect any significant increases. Thank you.

[Gabriele Blei, executive]

Thank you very much, Elena. Performance fees in October, not relevant, I would say. And we will be, as always, communicating the total Q4 number once we have closed the year, but I would say, not a relevant figure for October.

As far as distribution costs are concerned, the run rate, as I said before, it very much depends on the pickup in the nonorganic activity, which is mainly recruitment and everything associated with marketing and investment in the network. We do hope that at least a portion of that will be coming back.

We do not expect Q4 to be very much different from Q3, maybe a bit of a pickup due to some year-end change, sorry, closing the figures, but nothing that will deviate materially the EUR 85 million that we've recorded in Q3.

SG&A, the run rate. Well, let's go back to Slide 7, you see how this -- the trend of the EUR 50 million to EUR 53 million, it's quite something that has been rather stable over the last years, including some variables that have been paid at some point in time in Q4, typically. So once again, our effort is going to be to deliver to you sustainable margins at the bottom line level, which means that we have to keep cost, SG&A line under control.

And therefore, we do not expect, at this stage, material investment. If things will change, we will certainly update you and be able to make sure that you have a full understanding of how and why we have adopted a different view on the SG&A line. But so far, I think it's prudent to say that we will maintain the level as we have seen in the last couple of years.

[Operator]

The next question is from Alberto Villa with Intermonte.

[Alberto Villa, analyst]

I beg your pardon if I ask something that you already mentioned, but I was also on another call. But anyway, I have a couple of questions from my side. The first one is if you can give us the indication on the cash out for acquisitions in the third quarter and in the first 9 months? The second one is, your outlook on that inflows? We have seen improving numbers in the recent months overall. And I was wondering if there are, I mean the outlook for the different main jurisdictions, so Italy, I guess, Brazil and Australia, just to understand where is -- where new money are coming from? And if the recent trend is something that you expect also in light of the revamp in recruitment activity.

And the final one, I remember in the old days, we discussed also on the equity exposure of the overall AUM. I don't know if it makes sense anymore due to the diversification of the investment and to the different geographies and so on. But if you can give us an idea of the exposure to equity? I remember in the past, it was always around 40%, it was mainly domestic business. But for -- eventually for Italy, a comparable comparison, what would look like in terms of equity exposure?

[Gabriele Blei, executive]

Okay. So as far as the cash out, the M&A, as it is pointed out on Page 27, it's EUR 87 million for M&A and investment, and there, we had something like EUR 25 million in Q3. As far as the inflows are concerned, we did see the same thing. So yes, improving trend, although September is typically a very seasonally weak month, which is explained by the fact that people are coming back from holidays and clients are still half on holidays, half with their mind on their normal activity. But October was this month.

We do expect to continue to be able to raise money both in Italy as well as in the different regions. In Italy, as I was mentioning before, we have been collecting money on private market funds that you still do not see in the numbers, which are comfortably putting us in a position of being able to reach the EUR 2 billion target if not overcome this as far as the private market funds are concerned.

When it comes to the international business, we continue to see a good trend from our Asia Pacific businesses where we see, especially Singapore, a very solid and strong contributor to the monthly inflows. Australia has been posting positive flows, both at an organic level as well as with some acquisition of book of clients from advisers that were retiring. And if I look at our Middle Eastern businesses, we did collect money in Turkey every single month of the year and with an increasing trend in the last months. In Egypt, we launched the local fund, which has been well received by retail clients. Even if this has been the very first time that we had launched such an initiative in Egypt, but it was. It went well beyond our expectations. Dubai and Abu Dhabi, nothing relevant to mention there. I think this is where once things will normalize, the activity will rebound quite aggressively.

But at this stage, the inflow contribution is not material in terms of size. Brazil and LATAM in general, again, we have in difficult beginning of the year and then a normalization effect coming from Brazil, especially from June, July and onwards, we do see flows on the positive territory also in the most recent months, and we expect this to continue between now and year-end.

The flows from our U.S. investment, which is mainly linked to Kennedy Lewis, they have been closing the fund, the second fund at EUR 2 billion and then had to reopen the fund because of strong demand from investors, which made them close the fund at EUR 2.3 billion. They're working on their third fund and on a project with us to launch another vehicle. So there is a lot of activity going there on, and we expect the coming quarters, so especially 2021 to be very interesting in terms of development over there. In terms of equity exposure, you're right. We don't talk about this anymore.

We're quite frustrated probably by the fact that 40% is the bulk number that we still continue to see, should have been more. But we are looking at also different ways of exposing clients to riskier asset classes, one way is through the private markets. But clearly, accumulation plan is what probably would help clients to navigate the volatility in the financial markets in the equity market, especially, but it's not always something that they embrace easily, but we will continue to push on this.

[Operator]

The next question is from Angeliki Bairaktari with Autonomous Research.

[Angeliki Bairaktari, analyst]

First question, you have reiterated your EUR 300 million net income target for this year. Is that a level that you believe you can reach also next year? You showed the first slide is a comparison of your target versus sort of the evolution of consensus. And when I look at consensus for next year, it's closer to EUR 250 million. So would you say that is sort of a fair assessment? Also considering that your performance calculation will be different next year.

And second question on Sanctuary Wealth. Could you give us some color on the management fees that are earned on those EUR 6 billion assets? And the gross management fee and also the management team of the rebate that is paid to the U.S. financial advisers?

[Gabriele Blei, executive]

Okay. Target for 2021 or what consensus is saying. I'd like to remind you that you make up the consensus, and it's up to you to make the analysis and to take a vision on where financial markets should go, and assess our track record and the strategy that we are deploying and making sure that you can actually formulate your ideas.

Our job as managers and as -- with a vested interest in the company, is to keep growing the share price and the profit of the business. So we're not here -- as I said, in several occasions, we're not here just to make sure that we can maintain or defend our position. We are here to making -- make sure that we can grow the business, make it more profitable and make sure that the value of the share price reflect what we are seeing. I think it's under everyone's eyes, the multiples at which we're trading. So it's up to you guys to formulate what we will be expecting in terms of profit generation and therefore, how much we should be valued and assessed.

We are very relaxed on this we think that timing is on our side. And as we have seen in several occasions in the last 15 years, the stock price can rebound quite aggressively. And apparently, the distraction moments can be wiped away in a very short period of time. Management fee on factory is currently in the 1%, 1.2% region. We expect this to increase further as we can be able to cross-sell products and make sure that we are helping factories management to obtain what we have obtained in Italy or in other markets through the integration of the model.

Clearly, we're not just interested in what is factually generating in terms of management fee, but we're more interested in how much profit we can extract out of our U.S. operations. Therefore, on a management reporting level whereby we can collect all the fees and profits and margins that we can generate out of the cross-selling and the efficiencies that we can achieve.

The last question, I -- sorry, but I skipped that? Or you had just 2 questions?

[Angeliki Bairaktari, analyst]

Yes. Sorry, what would be the net management fee? So -- or to ask it differently, what is the rebate that Sanctuary pays, the platform pays back to the financial advisers? Is it fair to assume -- in the U.S., it tends to be a bit higher than in Italy. Is it fair to assume it's close to 80%?

[Gabriele Blei, executive]

And I think it's in line with market standards. So we're not seeing a different level of rebates to what is market practice in the U.S.

[Angeliki Bairaktari, analyst]

And excuse me, if I may just also follow-up on your answer on my first question. If I just ask it a bit differently. Your target for this year is EUR 300 million, and you have an aspiration as management team to grow earnings every year. That's, of course, badly dependent on markets. But if we just exclude performances, what do you think should be the run rate growth of your recurring net income in the next 2 to 3 years?

[Gabriele Blei, executive]

When we first started speaking about recurring profit made out of recurring margins. We said our aim was to achieve EUR 200 million. And then anything on top of that would have been a profit. And again, we need to grow this because we need to invest in our international businesses because our international business will grow in terms of contribution because we can increase the efficiency in our Italian business.

So once again, our aim is to try to bring this threshold higher, not because it's going to be something easy to do, but because it's the right action to implement, and we are stressing this across all our people. So it's not that we are just relying and counting on performance fees to achieve higher profits. It's a mixture of performance and recurring businesses. Business that is going to grow in the future with assets, of course, that will be -- will allow us to increase the profitability of the business.

We will certainly give you some kind of color and guidance as we approach 2021. But I would say for the time being, I leave it to you guys to assess our track record and eventually extrapolate on the projections going forward.

[Operator]

The next question is from Mike Werner with UBS.

[Michael Werner, analyst]

Most of my questions have been answered. But possibly, just a clarification. You indicated that the Genesis acquisition generated 0 management fees this quarter. Were there any costs associated with it? And then what should we expect in terms of a run rate from that business going forward?

[Gabriele Blei, executive]

Well, cost, indeed, as unfortunately is the case when we do any transaction, there are transaction costs associated. So lawyers, auditors, for the due diligence and so far and so forth. We have been able to maintain this within a decent level. So there hasn't been any material impact vis-à-vis our consolidated numbers at the P&L level at Q3.

But no revenues, some small costs, and the consolidation of the assets that obviously is lead in terms of the margin on a quarter-by-quarter trend that we have commented before.

[Operator]

The next question is from Gian Luca Ferrari with Mediobanca.

[Gian Ferrari, analyst]

Gabriele. My only question on paper issued by ESMA last week. I was wondering -- I understood that you are finally moving the remaining EUR 20 billion, EUR 25 billion of assets calculating performance fees on a monthly basis, 3 months rolling, to the annual calculation from January next year.

But I was wondering if you have any comment on this 5-year negative performance recovery that they are suggesting local regulators to introduce what are your thoughts on that? And if you agree that going forward, carried interest on your private markets will become probably even more interesting than the old performance fees? And if you have any IT or any kind of investment to do in order to incorporate all the suggestions made by ESMA?

[Gabriele Blei, executive]

Well, as you know, the -- any change at the regulatory level have implicit cost. We still have no idea how any member state will implement and/or adapt the guidelines. We're not particularly concerned because every change that has occurred in the past led to an action from our side and the action on our side is always with the focus of generating performance for clients and preserving our margins for our stakeholders.

So from our perspective, clearly, we will see how the 5 years or even the other points will be implemented. We will be reacting and accordingly changing anything that is required from the carried interest perspective, indeed, it's going to be a big party when and if we will be able to collect carried interest.

This is the beauty of the private market funds. And clearly, we will be continuing with our strategy to push clients to embrace the private market initiative because with this environment, we cannot generate performance at a sustainable level and in line with clients' expectation.

[Operator]

Gentlemen, there are no more questions registered at this time.

[Gabriele Blei, executive]

Well, thank you very much, and my colleagues and I are available for any follow-up. And have a very pleasant day. Bye-bye.