Azimut Holding SpA

MIL:AZM

Earnings Call Transcript 2021-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Holding 9 Months 2021 Results Conference Call. [Operator Instructions]

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

[Gabriele Blei, executive]

Thank you very much, and good afternoon to everyone. As usual, we'll go through the presentation and leave then the floor to you for any question you may have.

If we start on Slide #4, just a snapshot of the 9 months result. Starting from the left-hand side, clearly, the year so far has been an exceptional one, during which I would say, until now, at least all the stars have been perfectly aligned. So we have a net profit of EUR 322 million in the 9 months, up 40%. And recurring profit, if we look at the bottom part of the slide, grows due to both market effect as well as -- sorry, mix effect as well as the positive market to EUR 282 million. Both numbers, the EUR 322 million and the EUR 282 million include the EUR 30 million goodwill realignment as we have announced in the last presentation of first half results. I would anticipate that, given the new approach towards this goodwill realignment by the Italian government, we are clearly looking at the situation and eventually reassess our decision to take advantage of the possibility to realign the goodwill. But it's something that we will probably look into it towards the end of the year, beginning of next one.

Right-hand side, I'm not very inclined to comment on the higher end of the spectrum of what you see in terms of the potential fees from performance fee-driven that we might cash in. But more importantly, as far as the recurring net profit is concerned, we are basically already done with EUR 350 million, so the lower end of the guidance or the original guidance we gave at the beginning of this year, with the EUR 350 million most likely being able to be beaten by the recurring net profit that we will achieve during the fourth quarter of this year.

Turning to Slide #5, the results are good and the underlying trends are even better. As you can see from our Italian business, managed inflows into -- as a percentage of total stand at 87% year-to-date, significantly higher than in 2020 and 2021 -- sorry, in 2019. And most importantly, the flows are going where we want them to go, which you can quite see this with the growth in the private market assets that stands at 7.5% at the end of October 2021, and we will comment this figure further in the coming slides.

Bottom of the slide, shareholders and clients. All these actions and all these trends are clearly delivering in terms of recurring net profit margin because shareholders should enjoy this year, something that goes between 65 and 75 basis points in terms of margin, clearly based on the assumption that we are seeing as of today, and we will see how the last 1.5 months will shape up in terms of market development. The clients may also be happy because since 2019, they can enjoy cumulative net, net of fees, weighted average performance despite the fact that we've seen comments of being very expensive in terms of cost charge to the fund. Clients are positive by 17.3% in a cumulative basis.

Turning to Slide 6, focus on third quarter results. As you can see, I would try to focus your attention on the fact that excluding variable fees, so the recurrent business which we'll comment in a minute, is enjoying a growth that ranges between 25% and 30% year-over-year in terms of revenues, pretax profit and net profit. Clearly, this is to the benefit of the fact that the recurrent business is indeed more solid, more visible and it should be confirmed also in Q4. All of this, we're still waiting for a reflection in terms of rerating of the multiple, but we have time on our side.

Turning to Slide #7, I will spend a bit more time on this one and on the following slide to explain you the change in perimeter effect on our numbers. If we start from the left-hand side, the total revenues are increasing by 19% to EUR 866 million, up 19% or 12% under the same perimeter. The EUR 50 million that you see in terms of perimeter change includes the total revenues generated by companies that entered the new perimeters starting from September 2020.

Bottom of the slide, total revenues breakdown. You see how the bulk of the growth is entirely driven by recurring revenues. As for the time being, we are not cash any substantial performance fees as we have seen before. If you look at the detail, recurring fees are up EUR 134 million, which basically translates into the entire increase of total revenues of EUR 137 million because at the current stage, we have less variable fees vis-à-vis the 9 months 2020, and this is compensated and offset by higher insurance fees and other fees.

Turning to the right-hand side of the slide, recurring fees of EUR 250 million in the third quarter. If we look at the change in the perimeter, the sum of the numbers you see in the dotted line ends up being EUR 40 million, and you can reconcile this with EUR 10 million coming from companies acquired starting from September 2020 in Australia, Brazil, Mexico that adds another EUR 10 million.

Turning to Slide #8. The cost side as far as distribution costs, so as done before, and we start from the left-hand side, the top part. EUR 306 million, constant perimeter, EUR 273 million. So if you add up the EUR 33 million distribution costs and EUR 18 million SG&A of change in perimeter, it adds up to EUR 51 million, so we're down EUR 1 million in terms of effect from an operating profit standpoint linked to the change in the perimeter. And we will see in more detail how this is particularly in the reducing trend as far as banker is concerned.

SG&A, bottom part, EUR 164 million of same perimeter and EUR 182 million total SG&A. If we look at the right-hand side of the slide, again, doing the same exercises we've done before, the dotted lines is -- the sum of the dotted line comes to EUR 45.7 million coming from the change in perimeter to which we should add an additional EUR 5.3 million to reconcile with the EUR 51 million coming again from the companies that have been acquired over the last year.

Digging into the details, if you strip out the change in the perimeter, you see how distribution costs are basically flat quarter after quarter, EUR 92 million in Q1, EUR 91 million in Q2 and EUR 90 million in Q3. Whereas as far as SG&A lines, we have a stable trend up to Q2 in Q3. Net of the change in perimeter costs are up EUR 3.7 million, which is 50% explained by variable compensation packages that we are starting to take into account given the very exceptional and strong year that we are living, whereas the other 50% is linked to growth in foreign operations cost base.

So moving on to Slide 9. The group inflows and AUM evolution stands at EUR 80.6 billion, the highest level ever achieved. Every quarter, we are obliged to reassess the record. Although at some point, we will probably see this as a very solid figure that we will have to regain due to probably different markets. As far as the key points on this slide are concerned, the $4 billion in private markets today. I remind you, when we started the venture, we started in 2019 with EUR 600 million. So looking at this number today, we are quite pleased, although we know we have a long way to go and there's still some good work to do in terms of product launches, new initiatives and the reallocation of the asset base of our clients.

Flows, EUR 16.4 billion, of which EUR 8.9 billion organic. Again, a very solid year, actually, the highest-ever level achieved in terms of organic flows in a single year for the group, with EUR 1.9 billion from private markets, which, as we have commented in our latest press release on the flows, it's equal to 50% of the flows into funds.

So the green portion of the pie starts to become more and more material, with 7% of assets into private markets.

Turning to Slide 10. We have broken down the flows by product and region. I won't go into the details of the single region numbers, but we are seeing positive trends across all the geographies with still probably a bit of volatility coming out of Brazil, but the transaction we have signed with XP, which we'll comment in a minute, will help us in resume the growth path we were used to.

Most importantly, EUR 600 million of assets are going to be expected within the end of the year both out of Italy and our U.S. presence, thanks to the ongoing activity from our distribution networks as well as the closing that we expect to complete as far as the products in the fundraising phase are concerned.

Moving to Slide 11, snapshot on Sanctuary. I know most -- many of you are very curious on how this company is developing, and we are pleased to see that the general underlying market is still very supportive for the strategy that Sanctuary has, and the numbers are starting to move into a breakeven situation. So business development, 59 partner firms, $13 billion AUM by now, more than 100 financial advisers and most importantly, the success rate of transitioning teams, the joint Sanctuary is very, very high, with the bulk of the fees being on recurring fee based.

Pipeline for the next 12 months, solid because of the letter of intents that have already been signed, so we expect an ongoing net flow activity. And this, as I was saying before, is moving into a P&L that in the 9 months has achieved EUR 57 million in terms of revenues, with September being the first month in which we have -- or the company has particularly achieved operating profit breakeven losing something like USD 40,000, USD 50,000.

Moving to Slide 12, XP, the transaction we have announced a couple of weeks ago. As you might remember, we have entered the Brazilian market in 2013 with the acquisition of what was called then Quest Investimentos renamed AZ Quest. Now the asset stands at EUR 4 billion, 10x the amount that the company had when we acquired the business, and is one of the largest independent asset management company in Brazil, which is exactly what we wanted them to achieve. How did we do this? By diversifying the product range. They used to have a couple of strategies, and over time, they have been able to gather investment professionals that now amount to 28 professionals and enlarge the asset class that they can invest and address the client demand.

We're also very proud of the MQ1 rating by Moody's, which is testament of the excellency of the operations in Brazil.

What is XP? XP is a company that, most of you probably know, it's a business that's listed on the NASDAQ, $20 billion market cap. A very much technology-driven platform with a very wide range of investment solutions and products, including those of Quest indeed, and 3.3 million customers in the country and EUR 120 billion assets. Why did we do that? We did that because we think that we can increase the potential of AZ Quest and the strategy that we have in Brazil. We believe in the partnership, as you probably remember. We have always, since 2011, talked and delivered partnership model across our foreign investments because we need to be present with local people in order to fully exploit the synergies that we can generate from the integration of the platform. We also look to develop XP a wider cooperation stemming from international markets as well as our global team that can deliver investment solutions to XP client.

Moving to Slide 13, a quick update on the private markets initiatives. As we have already talked back in July, we have indeed launched 3 private equity solutions. One with HighPost, the private equity led by David Moross and Mark Bezos. We target EUR 100 million in our product offering, both RAIF and ELTIF, so we have 2 product solutions for high net worth individual and/professional investors and also through the ELTIF for more retail, say, let's call them, traditional clients. Same with Peninsula, a private equity mainly focused on the European market, with a target size of EUR 150 million. Last but not least, we have also been pleased to launch or to have access to Blackstone Asian Strategy, the private equity with our RAIF that is targeting a fund size of EUR 150 million. These funds are in the fundraising phase. These funds are going to see some closing between now and the end of the year, and this is why we are saying, probably, we will see EUR 600 million of net new money from private markets.

Moving on to Slide 15. Performance so far, as I was saying at the beginning, 6.8% net of fees year-to-date, which totals to 17.3% in the last 3 years. We have been very solid in terms of recurrence of our performance to clients, and our fund managers have done an incredible job in all the strategies that we manage, and we will see this in a minute in more concrete details as far as the client impact is concerned.

Slide 16, a snapshot on our product suite. We have, as I said before, EUR 4 billion, across a number of different strategies, venture private credit and private equity and infrastructure. The main key points here are the 3 funds that have close, direct lending at some EUR 228 million. We can say we probably have the biggest direct lending fund on the Italian market currently closed and ready to invest. Pathlight has done closing on their second fund, so we have incorporated this into the figure. And last but not least, Kennedy Lewis is also incorporating the benefit of the third fund that has been closed.

Moving to Slide 17. As you can see, we continue to outperform the industry, nothing much to say on this.

And moving to Slide 18. I would say that there are some key focus here because most of the time we are referred as a company that is not delivering the superior growth that other players are doing or we are just in line with the average of the industry. This is partly true, but when you look at the numbers in more detail, what should stand out is the fact that of the flows that we are generating, we're very cautious and careful on where these flows are going because they are 94% in managed assets. And the AUM per FA shows that 92% of that is managed assets.

As I was saying at the beginning or a couple of minutes ago, most of our clients today are enjoying, if not the entire client base, is enjoying a positive net weighted average performance, once again, net of all the high fees that we charge. And very important to note that besides the fact that we have hired 123 new financial advisers year-to-date, 14,000 new clients are coming from existing advisers this year. So the 40% year-over-year development is mainly driven by new -- sorry, existing advisers that are actually delivering a solid client growth. This is also partly explained by the private market offer that is something unique on the Italian market at the moment.

Slide 19, just a quick reminder of our fintech platform, which is quite diversified with -- we started from, as always, the investors by creating funds that could, in some extent -- to some extent, replicate the business proposition of a bank through private debt fund or direct lending fund or a multi-strategy approach that is, again, quite unique. Today, we have something like EUR 500 million of financing to Italian SMEs that is actually very -- starts to become a very material number and delivers us the credibility that we would like to achieve vis-à-vis corporations in Italy. We added and developed the Synthetic Bank project by complementing this with the marketplace.

Azimut Market Place looking at Slide 20, is something that will be useful for the CFOs of Italian SMEs because they will find, in one single point, a number of services and the number of product offering that they need for their daily activity. And we're making this marketplace effort in order to have a solid partnership models with a number of different players as well as developing new clients for our financial advisers. And clearly, this will be positioning Azimut in a different way in terms of the fintech world.

Moving to Slide 22. I leave the floor to Alessandro for the usual comments on the financials.

[Alessandro Zambotti, executive]

Thank you, Gabriele. As we always do, we can go through the consolidated income statement, and then we will quickly review the net financial position.

So Slide 22, the consolidated income statement. As we already said at the beginning when we opened the call, we consolidated a net profit of EUR 322 million. We have EUR 92 million more compared to the 2020. This is thanks to on the, let's say, the evolution of the business and the solidity of the group in terms of strong growth, in terms of the recurring fees. Because as you can see, we have EUR 22 million less in terms of variable fees despite the fact that then we have also the benefit of the EUR 30 million linked to the realignment of the goodwill.

So as you can see, total revenue increased by EUR 138 million. The operating cost increased by EUR 75 million, with an operating profit that increased by EUR 62 million. And then we have a profit before tax that increased by EUR 77 million compared to the 9 months 2020.

Back to the total revenue. We grew positively to all the lines that compose the total revenue despite, as I said, of the variable fees that impacted by EUR 22 million less. The recurring fees increased by EUR 133 million, 0.5% more or less. This is coming by EUR 72 million, it's linked to the Luxembourg product. So thanks to the net inflows, but also the positive market that we are -- affecting our AUM. And then EUR 42 million are coming from the new perimeter, so the acquisition that we consolidated started from September 2020. And EUR 17 million is linked to the increase and to the growth of our international business.

The other income increased by EUR 6.4 million, mainly explained by Sanctuary, so the acquisition of February 2021, and the insurance revenue increased by EUR 60 million. This increase can be explained by EUR 6.4 million that are coming from variable fees more compared to the 2020 and EUR 10.6 million, thanks to the net inflow and the market effect.

At level of the cost. Again here, we have distribution costs that increased by EUR 45 million. We have, let's say, 2 positive -- I mean, 2 effects of EUR 22 million. It's linked to the fees in terms of recurring fees paid to our financial adviser, obviously linked to the increase of the recurring fees just disclosed. And EUR 44 million are coming from a foreign business. So the international business, and again here, the main impact is linked to the acquisition of Sanctuary. Both these 2 amounts that overall should create a negative impact, that's an increase of cost of EUR 66 million, it has been netted by EUR 5 million of less costs linked to marketing, let me say, in general, and EUR 9 million of the, let's say, the incentive part of our financial adviser due to the introduction of the new amortization method.

Then at the level of the personnel and SG&A costs, we have an increase of EUR 26 million. Again, here, we have EUR 80 million coming from the new perimeter and EUR 68 million for the current perimeter. And again, here, it can be allocated not with the Italian businesses, I mean as I would say, but to the evolution of the international business. But in particular, to the variable cost of our financial advisers that, as you know, at the level of the international business, are allocated as an employee.

Finally, moving to the interest income. We have a positive effect of EUR 10 million, EUR 10.6 million. This is mainly explained by the fair value option effect, positive by EUR 5 million. EUR 4 million positive, again here, is coming from our liquidity that we manage, it's investing to our funds. And then EUR 1.5 million actual dividend coming from our minority stakes.

In general, we are, let's say, flat to the level of the nonoperating costs and the interest expenses.

Then if we move to the net financial position. We are, at the end of September, positive by EUR 121 million. We increased, positively, thanks to the results that we are consolidating compared to the 2020 that we were at EUR 30 million, so we are positive increase in the net financial position by EUR 90 million and can be quickly reconciled with the net profit before tax of EUR 347 million, less the dividend that we paid in May of EUR 136 million for investment for EUR 296 million and the tax paid in advance of EUR 50 million.

I'm going to give back to Gabriele for the final part of the presentation.

[Gabriele Blei, executive]

Thank you, Alessandro. Great job, really. Thank you very much for that.

Moving to Slide 25, dividend policy. We have listened the concerns and the screaming that we didn't have any very clear dividend policy, and we decided that it was probably time for us and you to understand better how we see the business, given the fact that for almost now a year, the P&L of our company is moving or is working with a recurrent profit that is substantial given the fee change that we have finally implemented in full since January 2020 -- 2021, sorry.

So the dividend policy stems from the past, which you can see on the left-hand side. We have, since the IPO, a 54% average payout. And since 2010, so something like 12 years, a 63% average payout. The business back then was very different because of the performance fee contribution that had less visibility and more volatility vis-à-vis our bottom line. And today, we are, as you can see in the bottom left, a recurring earning business that is solid and visible. So going forward, what we have conceived is to have a dividend payout policy that rests on the recurring net profit and needless to say that you will have to formulate your main assumptions to get to the recurring net profit, which is going to be in the range between 50% and 70%. Why the range? Because if we will have M&A opportunities of a significant size, we will consider being at the bottom of the range, whereas if we don't see the need to retain cash for foreseeable M&A opportunities, we will definitely deliver the higher end of the range.

Clearly, the business generates additional profit besides what is going to be distributed. Whatever is left will be employed in M&A, debt repayment because as we have argued for quite some time, we're moving into a repayment of EUR 350 million in March 2022 and the repayment of EUR 500 million in December 2024.

Last but not least, buyback. This is always an opportunity. We have the approval from the AGM, and we will always use it to create shareholder value.

Moving to Slide 26, summarizing what we have seen. 6.8% of our clients are enjoying today, plus 1.6% vis-à-vis the Italian Fideuram Index. Assets stands at record level as well as net flows for the year. We expect November and December, as we've seen also, thanks to the contribution of the private market, to be strong months to finish off at a very decent level. Nine months net profit at EUR 322 million, up 40% year-on-year and, as we have seen, with the benefit of performance fees seem to be cashed in.

Concluding with Slide 27, the bottom of the range of EUR 350 million, EUR 500 million has already been basically achieved. Italy is continuing to demonstrate our competitive advantage as far as private market funds are concerned. We want to continue on this path. We have more than 15 products on the pipeline for 2022 to be launched over the next year to raise more money in private market funds. International, we are unlocking value in one of our strategic markets, which is Brazil. Needless to say that we will always monitor and manage our interest in the different markets in a very proactive and shareholder value-driven way, and we will continue to develop the integration of the business. Last but not least, in private markets, EUR 4 billion, we expect this to reach, given the size of the asset, as we know them today, at 8.6% by the end of this year. This is trending towards the 10%, so the double digit, which is starting to be a significant achievement. But as you know and as you probably remember, we have set our 2024 target of more than 15% in private market funds.

With this, I will leave you the floor for Q&A. Thank you.

[Operator]

[Operator Instructions] The first question is from Giovanni Razzoli with Deutsche Bank.

[Giovanni Razzoli, analyst]

A couple of questions. The first one is on your recurring profitability. You've been pretty much clear in saying that EUR 100 million is a recurrent net profit level as of today. But you always show that the acquisitions, for example, the one in the States are now breakevening, so should add additional operating profit in 2022. I was wondering whether -- so this EUR 100 million of recurring net profit for the next few years is set to increase going forward, so it's EUR 100 million clearly per quarter?

Second question is on Slide #25. Thank you for providing us updated and very clear dividend policy. From a managerial point of view, I mean, what are the priorities of the Board? So the least that you are showing here, M&A, debt repayment and buybacks, shall I take it as priority list? Or is it more debt payment, buybacks and M&A as a third one as a priority?

And the last question, I was wondering whether you can consider to replicate your smart transaction in Brazil, in other geographies where you do have a relatively large presence like Australia or other geographies?

[Gabriele Blei, executive]

Thank you very much, Giovanni. Thank you. So first question, indeed, recurring profit is at a very, very high level today, and this is also a courtesy of the market. So let's not forget that this market environment will not last forever unfortunately. Although if this happens, we will clearly exploit this as much as we can, and we have proven the fact that the business model can deliver significant upside when it comes to the mix and market effect.

And going into the foreign operations, indeed, we see the business across many geographies, improving their momentum. And as far as probably Sanctuary is concerned, which is moving the needle or has moved the needle in the last quarters as far as the results are concerned. If, we assume, no additional growth or external growth from their point of view. So we will run the business as it is, the business will turn profitable next year in an interesting way, let's say. Although we are puzzled by the fact that we should take advantage of the further growth option that we have and probably sacrificed in the short term, the margins for the benefit of creating a large scale business in the U.S., and at the same time, start to reason with our partners on how to better uplift the margins in the long term as far as the integration with some of our production centers. This is going to deliver over the long run, which is what we care, a sustainable recurring profit margins that is typically higher than what we are normally seeing in these kind of businesses in the U.S.

Priority of the dividend policy and of the Board, although I should say you should ask the Board, but I'll try to transfer to you the reasoning of the people that are sitting in the Board. But it's not by coincidence that we have listed the options in that manner. We are a business that wants to grow. We have shown that we can deliver this growth, and over time, we are capable of transforming investment into profit growth. We will continue to do so. And we will continue to do so in different geographies. And it must be taken as a given for the time being unless there are going to be some significant advantages/changes in the environment that we will proceed with the debt repayment as the debt falls due.

Buyback is, as I said, something that we have always had in our AGM approval points. We want to continue to have this option, and we will create shareholders' value through the buyback opportunity.

Thank you for the smart transaction. Brazil is indeed a very interesting market. It's a market in which you need partners, you need local people and you need a tech platform to develop the business beyond a certain level. We have opportunities to do so in other regions. Although there is nothing on the table at this stage, but potentially, this will become a case study for our potential partners in different markets given that we have done this in other regions. It's exactly like when we started the international expansion. No one believed us, no one thought it was possible, but then 10 years later, we demonstrate that it is possible. People talk to us and engage us as a serious partner that wants to develop the asset management business. Thank you.

[Operator]

The next question is from Alberto Villa with Intermonte SIM.

[Alberto Villa, analyst]

Sorry I couldn't join immediately, but there were a lot of conference calls overlapping.

I have a few questions. The first one is on the personnel cost outlook. We have had this increase in personnel cost that you explained, obviously, mostly due to the change in perimeter I would like to ask you if you can provide us an outlook of the personnel cost inflation going from maybe in 2022 in Italy and in the international business as the perimeter of today, obviously?

The second question is on the outlook for inflows. You delivered high strong inflows recently in the last month also on private markets, combining the activity -- the commercial activity you did in the last few months. I was wondering if you can give us an idea what is the, let's say, aspiration for net inflows on an organic basis for next year?

And finally, I would go back, if I can, on Brazil transaction. You probably commented in your presentation unfortunately, I couldn't hear. But have you got -- can you share with us what is the opportunity there with this transaction in terms of increasing the size of the business in Brazil for Azimut?

[Gabriele Blei, executive]

Okay. Thank you very much.

So SG&A, this is a -- it's a business that when we need it, and I remember 2008 and more recently, in the last, I would say, 3 years from an organic perspective, we froze the inflation of the cost base. And we froze it with specific actions that we took on a number of different aspects because normally, this is a business that has a 5% to 7% organic growth in the SG&A line. If indeed, the business has a good portion of the compensation that is variable or linked to the development of the revenue line. So to me, I wouldn't be surprised to see a continuation of this tight cost control on what we can and want to control. Although on the other side, an approach that delivers growth and therefore, investment in the business.

Outlook for 2022, more specific, probably we will stay in the range I mentioned. But clearly, this depends on one big variable that we cannot control, we cannot predict, which is the market development.

Inflows for 2022 organic. It's been a very, very good year, probably a year that we will remember for quite some time. I'm not pointing to the fact that we are looking into a negative market trend. But on the contrary, we will probably have to become more realistic on what we can expect in terms of market environment. It's a system that has shown consistency and resilient flows also in volatile environment, thanks to the diversification that we have across different product range, across different geographies. Assets are sticky because of the 90% portion of the assets linked to retail side. And with the fact that private markets are growing, we will see more stickier assets even in the future. So a bit too early to give you a precise indication of where we want flows from an organic point of view for 2022, but I hope this flavor provides you some indication on what we are reasoning.

The Brazilian opportunity. It is indeed a transaction that will bring benefit. It has been built with XP, and please do note that XP Private Equity is also part of the game, and clearly, they have some investment period that is different from XP. So at some point, that we want to see the benefit of this investment and the benefit of this investment becomes clearer due to the synergies that we can extract. As you can see from the chart, in the slides in the presentation, we have been working with XP for a number of years within AZ Quest. And we have set clear targets for them to increase their stake in the business because it's a 2-phase project, so let's see how things develop. Brazil is still an emerging market, still very volatile, still vulnerable to political and nonpolitical discussions, but we see a very big opportunity from the transaction that we have completed. Nothing compared to your listing, which I congratulate, but again, a very interesting opportunity for us.

[Alberto Villa, analyst]

Finally, if I can, can you give us an idea of what the magnitude of the performance fees for the fourth quarter is right now?

[Gabriele Blei, executive]

You see it on Slide 1 of the presentation, it's quite material. We are seeing, at the current stage, higher end is at the EUR 600 million mark being the performance fee and the recurring fee component that we can generate. But let's see how things shape up between now and December 31.

[Operator]

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

[Hubert Lam, analyst]

I've got 3 questions.

First, on the dividend. Thank you for the new dividend policy. I just wanted to check. In years in which you have strong performance fees, I just wanted to check if -- that they will not be taken into consideration for the dividend and that will be used for other strategic purposes? I just want to check if that's clear. And just also wanted to check on the dividend if it will be progressive or it will just depend on what other uses you have during that time? So that's the first question.

The second question is on the commission expense. It was lower this quarter as a percent of recurring fees than the prior quarters. Is this percent new run rate? Or is there a reason why this percent is lower this quarter? Or we -- should I just focus more on the absolute figure rather than as a percent of the recurring revenues?

And lastly on -- also on costs. On Slide 8, you showed the cost income ratio going down over time. Where do you see it going forward? And should we assume it improves from that 43% going forward?

[Gabriele Blei, executive]

Thank you, Hubert.

Performance fees, clearly, recurring profit is not taking them into account, and we want to use this for potential investment, debt repayment, buybacks and any opportunity that may arise. And we clearly decided that the range is based on a recurring net profit figure. It cannot be progressive because it will depend on the percentage that we will apply of the recurring profit that we will generate. So we will not see a dividend going up by, say, EUR 0.10 every single year. It will indeed depend on the performance of the business that I remind you, depends on the performance of the market and on the industrial performance of our distribution network.

Commission expenses, as Alessandro explained to you before, we have been able to be quite good in terms of managing certain items within the commission expenses, especially as far as marketing is concerned, we were quite lower vis-à-vis a normal year. And as far as the rebates to the financial advisers, I can confirm you that we are still paying the 40% of the fixed management fee to our advisers. Otherwise, we will have a very long line of people outside of our office protesting, which is not something that we want in such an exceptional year.

Cost income going forward, as I mentioned before to Giovanni and Alberto, again, it's a function of where revenues go and therefore, the market environment on the one side and the discipline that we will retain as far as cost evolution is concerned, albeit the fact that we will continue to invest in the business and eventually the change in the perimeter will continue also in 2022. So 43% is a number that we're pleased to have achieved. It's a number that we are comfortable with. Can it go up or down some percentage points? Definitely, yes. But it depends on the market environment and on our capability to invest in the business.

[Operator]

The next question is from Domenico Santoro with HSBC.

[Domenico Santoro, analyst]

Actually, I lost also part of the presentation at the beginning. So I apologize if I'm asking questions again.

Looking at your slide is Page 8, actually, on the cost of the new business perimeter change. I wonder if this EUR 5 million per quarter is a sort of a steady step for the time being? So this is the cost of the additions and if the group -- if the perimeter doesn't change, this will be sort of a recurring going forward. Instead, on the revenues part at Page 7, I mean, the addition due to the international business is, of course, is getting larger and larger. This was also your ambition, of course, to switch into equity so to increase the revenue component. It's very difficult for us to model this part of the business. Can you give us, if the group doesn't change the perimeter from now on, which is unlikely, but things remaining the way they are. What is your ambition in terms of revenues from this business in the medium term, long term, 3, 4 years? Just to get an idea on the total.

Then the margins improvement in the quarter. Is that because you did more liquid? And how do you see margin from this level?

And coming back on your dividend policy, would you see a gradual increase of the dividend for the next 3 years? Or shall we assume that every year, you reset everything, you start from 0 and you apply whatever is the percentage that you might think is reasonable considering also the investments and the international expansion? So there might be also a cliff effect basically.

[Gabriele Blei, executive]

Thank you, Domenico, and thank you for the question. But let me start from the last one because I want to be very, very, very clear with you guys because we live in an uncertain situation up to now, and we don't want this to become an uncertain situation from now for the future.

Dividend policy. Up until now, we were saying EUR 1 is the floor and whatever comes on top is something that depends on the evolution of the business as well as the need of a number of different aspects. Today, we're setting a range -- a range which is based on recurring net profit, and it's a range because we need to eventually have the freedom to finance additional M&A. So you will never see probably, unless we'll have an exactly same year from 1 year to the next, a dividend that goes steady increase year after year. It's a range. It's a range on a function of net profit, recurring net profit, and I assume it will be quite interesting to understand how you see our evolution of the recurring net profit, which is also a function of where markets are going to go in the next years.

As far as margins, so going backwards in terms of your questions, we do see margins being stable and/trending higher. And I have to stress once again the fact that we have lived a very, very good 2021 because probably only the month of September has been a bit shaky, and we thought the party was over, but then this was completely reverted back in October. So margin, as we have always mentioned to you, is a function of where market go. And we think at the current stage, they are quite stable. The fact that the private markets are growing enabled us to retain the clients and maintain the clients invested in funds that are not going to change the margins for the foreseeable 7, 10, 12 years.

So the faster we go on increasing that proportion, the better it is for all of us, but we might see volatility in the margins if volatility in the market start to kick in. Cost and the change in the perimeter of EUR 5 million and then again EUR 5 million. No, it's actually a good coincidence, I have to say, but I don't know if Alessandro will want to jump in and say something more. But it is indeed a perimeter that has changed one quarter after the other, as you have noticed from our press release in the last months.

And then on the revenue side and the change in the perimeter, I assume what we wanted to do in Slide 7 and 8 is an exercise of transparency to you guys because once again, we have discussed with you many times and listen to the concern that sometimes you had as far as the visibility on a number of different parts of our business. It is something that we can continue to provide, although we should also think of how to improve or make it more clear in the future. So this is a simple exercise that allows us to tell you that the perimeter is changing and the perimeter is adding value over time as far as both the revenues/the operating profit contribution. Once again, it will change. It will improve in the future, yes, because we are here for this. Otherwise, I would enjoy my life on the beach.

[Domenico Santoro, analyst]

I understand about -- sorry, just a follow-up on the distribution costs of the current year. I understand that you keep paying 40%, it doesn't change, and everybody is happy. But I mean, numerically, the margins and the revenues they trend up and the distribution costs, they trend down. So first of all, it's going to be the gap more visible in Q4 about the distribution cost? Or numerically, it makes sense for a reason that the distribution cost they trend down?

[Gabriele Blei, executive]

Listen, Domenico, I think that there is proactiveness as far as the distribution cost line is concerned because we have been managing a number of different components that make up this line. And clearly, this is also linked to the fact that the prolonged lockdown or, in any case, impossibility to do a number of different things have reduced significantly the marketing costs. We have had different amortization of some incentives that has kicked in, in 2021, which has had an impact on the distribution cost line for the first time this year. So clearly, you have a downward trend also due to this. And I would say these are the main elements vis-à-vis this. If I were you, distribution costs for Q4, I would not imagine the same trend as in Q1, 2 and 3 simply because as for 2020, as you remember, in Q4, we expensed more distribution costs because we matured more performance fees, more net profit that have also an impact on the way we remunerate our people. And we are a strong believer of paying people when they deserve to be paid because of exceptional results.

[Alberto Villa, analyst]

And last -- lastly, for the other part of the shares buyout from new management replace. Is there any updates there?

[Gabriele Blei, executive]

No update.

[Operator]

The next question is from Angeliki Bairaktari with Autonomous Research.

[Angeliki Bairaktari, analyst]

Could you give us a bit more detail on the private markets AUM which are growing quite nicely? First of all, what is the average maturity of the private market funds? I think you mentioned before between 7 and 12 years, but I would be curious to hear what is sort of the average that you see across all the funds that you have raised? And secondly, it might be a little bit early, but can you give us an indication of sort of the performance that you see in those funds, perhaps what percentage of capital commitments have been invested in companies and sort of a bit more color on how those funds are tracking? As those become sort of a bigger percentage of your AUM, I would imagine more and more investors would want to know the performance, the percentage of capital invested and what is gross multiple realized on those funds, et cetera.

[Gabriele Blei, executive]

Thank you, Angeliki.

Average maturity. All our products, whether in the credit or equity space, have maximum fund that ranges between 10, 11 years. Only the infrastructure funds has a term of 12 years. As you may know, the private market funds can have extension years both in terms of investment or divestment period, but it will depend on how things go. At the current stage, we have to think of these numbers, and we actually have followed the main trends in the industry as far as the duration of closed-end vehicles.

Performance fee. Thank you for the question because, really, I do think that nobody out there, and probably not even us, which is quite peculiar, are factoring in, in the future performance of the business, any carried interest that we will be able eventually to generate. So I leave it to you. I don't know how you assess the value of a business such as ours. But eventually, you might start to consider some performance fee element. Indeed, it's a bit too early to disclose potential performance because most of our products are in the full investment cycle, which is -- which is undergoing. If I can say something vis-à-vis the first product that were the first initiatives that we have launched in 2015 or the ones that we have participated in, I have -- I can tell you that the products have done probably 4x the investment on average.

So these are strong marketing tool that we provide to our financial advisers when it comes to showing and demonstrating that we have some track record that can be referred to when looking at our capabilities to manage private investment. I would say, let's see how the market develops, how our investment opportunities shape up, and we will certainly update you in the future.

[Operator]

[Operator Instructions] The next question is from Elena Perini with Intesa Sanpaolo.

[Elena Perini, analyst]

Yes. Just a follow-up on your recurring net profit calculation. If I look at Slide 4 and Slide 25, it seems that -- well, in the first 9 months, you gather EUR 252 million of recurring net profit. So am I calculating correctly a recurring net profit around EUR 332 million for the full year, if I add up what you put in your Slide 4? And how this can compare with your EUR 350 million recurring earnings target?

[Gabriele Blei, executive]

Thank you, Elena. I think that the difference between the 2 numbers, as is correctly pointed out in the footnote, is the fact that the EUR 282 million is growth of the EUR 30 million goodwill realignment impact, whereas EUR 252 million on Slide 25 is net of that. So clearly, this is a noncash item, which we will not be able to consider. And as I mentioned at the beginning, given the change of the government approach vis-à-vis the decree, we are carefully assessing whether to take advantage of this opportunity as it used to be or discard this opportunity because it became no longer an opportunity to realign the goodwill because of the fact that with the extension to 50 years, you basically get back what we will be paying. So there is actually no need for us to do so. And there is clearly very less economic benefit. So the EUR 252 million is actually what you should look at. However, we believe that we will be able to reach the EUR 350 million in terms of recurring profit or around that level, including Q4 provided the market are going to close at the level we are seeing right now.

[Operator]

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

[Gabriele Blei, executive]

So thank you very much for your time, and myself and my colleagues are available for any follow-ups. Have a very good afternoon. Bye-bye.