Patria Investments Ltd

NASDAQ:PAX

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Patria First Quarter 2024 Earnings Conference Call. [Operator Instructions]Please be advised that today's conference is being recorded.I would now like to hand the conference call over to your first speaker for today, Andre Medina, from Patria Shareholder Relations. Andre, please go ahead.

[Andre Medina, executive]

Thank you. Good morning, everyone, and welcome to Patria's first quarter 2024 earnings call. Speaking today on the call are our Chief Executive Officer, Alex Saigh; and our Chief Financial Officer, Ana Russo. We are also joined by our Chief Corporate Development Officer, Marco D'Ippolito; and our Chief Economist, Luis Fernando Lopes, for the Q&A session.This morning, we issued a press release and earnings presentation detailing our results for the quarter, which you can find posted on the Investor Relations section of our website or on Form 6-K filed with the Securities and Exchange Commission.This call is being webcast, and a replay will be available.Before we begin, I would like to remind you that today's call may include forward-looking statements, which are uncertain, do not guarantee future performance, and undue reliance should not be placed on them. Patria assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve inherent risks, including those discussed in the Risk Factors section of our latest Form 20-F annual report.Also note that no statement on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Patria funds.As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards, or IFRS, as opposed to U.S. GAAP.Additionally, we would like to remind everyone that we will refer to certain non-GAAP measures which we believe are relevant in assessing the financial performance of the business, but which should not be considered in isolation from or a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable IFRS measures are included in our earnings presentation.Now I'll turn the call over to Alex.

[Alexandre Teixeira de Assumpção Saigh, executive]

Thank you, Andre, and good morning, everyone. The first quarter of 2024 marked a great start for the year, and I'm very pleased with the performance we delivered.We generated $35.1 million of Fee Related Earnings in the quarter, representing a 13% increase from 1Q23, with only 20% of this growth coming from acquisitions.We delivered more than $31.3 million of distributable earnings, or $0.21 per share, and announced a quarterly dividend of $0.18 per share.We raised $1.1 billion year-to-date through April and over $5.1 billion in the last 12 months. We are confident we are on track towards meeting our $5 billion fundraising target for the year.At the portfolio level, we generated solid investment performance, which helped offset the impact from realizations and FX movements.Generating strong investment returns for our fund investors remain our primary objective, and this strong performance continues to support our healthy Net Accrued Performance Fees balance of $514 million, or $3.41 per share, as of March 31.Total AUM and fee-earning AUM have grown more than 17% and 20% from 1 year ago, respectively, with only 1/3 of this growth coming from acquisitions.This past Monday, we were thrilled to announce the closing of our acquisition of abrdn's Private Equity Solutions business. As previously announced, the acquired platform when combined with Patria's existing global private markets vehicles will form a new vertical, global private market solutions, or GPMS, with aggregate fee-earning AUM of over $10 billion. We believe the breadth and scale of this new vertical positions Patria as a premier gateway to global private markets for underserved investors in LatAm.Also on the M&A front, we are marking good progress towards closing the pending acquisition of Credit Suisse's real estate business in Brazil with up to $2.4 billion in fee-earning AUM as of 1Q24. We now have all the required regulatory approvals in place and expect to hold the necessary fund shareholder votes to approve the transfer of the management contracts.Driven by strong organic growth and our accretive acquisition strategy, we remain confident in our ability to deliver our previously communicated 2024 FRE target of $170 million and our 2025 target of FRE in excess of $200 million, reflecting year-over-year growth of 15% and over 17%, respectively.Digging deeper in our expanding platform and pro forma for acquisitions, our 1Q24 fee-earning AUM reached over $34 billion, representing over 4x growth in the 3 years since our IPO. Notably, pro forma for the acquisitions, permanent capital comprises about 20% of our fee-earning AUM, up from insignificant levels at the time of our IPO.The expanding breadth, scope and earnings power of our platform is highlighted by the fact that, number one, we have grown from a 2-product asset manager at the time of our IPO into a diversified alternatives manager with pro forma $34 billion of fee-earning AUM spanning across a range of strategies and investment vehicles, including private equity, infrastructure, credit, real estate, public equities and global private market solutions. The recent launch of our Infrastructure Private Credit Fund highlights how we are leveraging our expanded platform to bring new and differentiated investment solutions to our clients.Two, we offer an expanding range of product structures in order to meet investor objectives and with permanent capital drawdown funds and SMAs representing over 70% of our fee-earning AUM underscoring the inherent stickiness of our management fee revenues and Fee Related Earnings.Three, we are diversified across currencies, and importantly, 70% of our pro forma fee-earning AUM is denominated in hard currencies: U.S. dollars, British pounds and euros.As we think about our path forward, it's important to emphasize that organic growth of existing and acquired investment platforms post acquisition remains our top priority. This is highlighted by the fact that from year-end 2018 through 2023, our fee-earning AUM, excluding the initial inflows of acquisitions, grew at a CAGR of 17%.While sensible organic growth is our top priority, diversification through inorganic expansion remains a key component of our strategy. We believe in the ongoing consolidation within the asset management industry, and at many times M&A is the most efficient way to capture new avenues of growth. It can speed time to market and allows us to capture the opportunities we see in the region through the addition of skilled and culturally aligned investment teams with strong investment track records, complementary and differentiated investment strategies and new distribution capabilities. In some instances, buying may also be cheaper than raising equivalent amounts of capital through placement agents.Overall, we are very proud of the differentiated and diversified investment platform we have built both organically and inorganically, making us the largest alternative asset management platform in the region in terms of direct assets under management, revenues and Fee Related Earnings as we remain very excited regarding our future growth prospects.Now let's have a closer look into our investment verticals. This past March, Private Equity International released its 2023 PEI awards ranking Patria Private Equity as the Firm of the Year in Latin America. This was our second year of participation and the second win in a row. The award reflects the market recognition of consistent performance, sector knowledge, commitment and leadership in Latin America.Investment performance excellence is highlighted by the 20-year pooled net IRR in U.S. dollars of our flagship private equity funds of 17.5% as of the 1Q24. For comparison purposes, as of 3Q23, the latest available market data from Cambridge Associates, our pooled performance was 18.3%, which represented 11.9% of excess returns over the past 20 years relative to Cambridge benchmark returns in LatAm. Over the same period, Patria Private Equity generated excess returns relative to Cambridge benchmarks when compared to emerging markets, Asia and the U.S., with excess returns over 7.1%, 7.2% and 3.3%, respectively.In what remains a challenging private equity fundraising environment, this strong track record helps our fundraising efforts. In 1Q24, we signed a new $65 million co-investment in our new vintage private equity fund which is currently in the market. We have secured approximately $1.2 billion of commitments as of 1Q24 for our new vintage buyout fund, with fundraising outperforming in LatAm, Asia and the Middle East as the private equity fundraising environment in the U.S. remains challenging. Nevertheless, we continue to see a path to reaching $2 billion of commitments.Beyond our flagship funds, our private equity platform currently with $11.7 billion in AUM also offers growth equity and venture capital funds, strategies that we did not offer at the time of our IPO.With regards to our infrastructure vertical and new product developments, in 1Q24, we raised over $60 million for one of our infra corporate funds, with focus on mature energy distribution and transmission assets. This was the third capital raise for this specific vehicle, and it closed above our initial targets. This strategy, which represents permanent capital AUM, continues to gain scale and now totals more than $310 million in AUM.In contrast to the struggles many managers have been facing with regard to generating realizations, our flagship drawdown business has seen a pickup in realization activity for LPs, which is crucial driver of fundraising for our latest vintage flagship infrastructure fund which is now in the market. As of 1Q24, we have already secured over $1 billion of commitments for the new fund and are making progress towards our goal of raising $2.5 billion.We believe the investment opportunity within infrastructure is very attractive and have already started to deploy this capital. To illustrate, in 1Q24, we announced a $110 million commitment to a greenfield solar plant in Colombia with a 360-megawatt installed capacity, representing the largest solar farm in the country, with $300 million of projected CapEx. Also, the first announced investment from this fund, a toll-road concession in the south of Brazil with a 30-year contract protected against inflation and a 20-year traffic history, began operations during 1Q24, ahead of plan.Looking at investment returns as of 1Q24, the pooled net IRR in U.S. dollars for our 2 latest vintage funds was 12.3%, outperforming the [ Hamilton Lane ] Global Infrastructure median benchmark and the Dow Jones Brookfield Global Infrastructure Index by 4.1% and 12.4%, respectively.Finally, in 1Q24, we contributed BRL 50 million, or approximately $10 million, out of a limited capital exposure of BRL 100 million, or approximately $20 million, in order to provide seed capital to Tria, our new and separate energy trading company. Tria was created to access a high-growth opportunity we see in a fragmented sector with compelling fundamentals. We believe Patria's investment team has the skill set and expertise to help build this business, which has significant synergies with our infrastructure portfolio companies.Patria, through its seed capital investment, holds a 67% stake in Tria, which began its operations this April. Other shareholders include 4 well-respected minority partners with recognized expertise in energy trading.Over time, our goal is to develop Tria into an asset management business, with the intention to raise private credit vehicles to fund both power generators and consumers with energy-backed contracts.Our credit vertical continues to generate strong and consistent returns to our investors. As of 1Q24, our 3 largest strategies, LatAm high yields, LatAm local currency and Chilean fixed income, have each outperformed their relevant benchmarks for all reported periods: 1Q24, 1-year, 3-years, 5-years and since inception. Specifically, our LatAm high-yield strategy, with $3.6 billion in AUM, has outperformed its relevant benchmark by more than 370 basis points since inception in early 2000.In the last 12 months, we raised over $900 million for our credit products, including approximately $300 million in 1Q24. Fee-earning AUM grew more than 19% organically from 1 year ago and more than 4% sequentially.In addition to the 3 aforementioned strategies, Patria's diversified credit platform with approximately $6 billion in AUM offers funds in private credit, infra private credit and receivables. Private credit strategies continue to see strong momentum globally, and expanding this vertical both organically and potentially through M&A remains a key priority.To illustrate, we are currently raising a U.S. dollar-denominated LatAm-focused private credit fund, with a first closing expected for the second quarter of this year. We hope to have more news on this soon.Turning now to public equities, let me take a moment here to congratulate Pablo Echeverria, Moneda's founder and head of Patria's public equities, for our Pionero Fund, for which Pablo has been the portfolio manager since its inception. Focused on small and medium-sized companies in Chile, Pionero reached its 30th anniversary this March, with impressive performance along the way, including a 19.6% return in the past 12 months and a 13.5% annualized return since inception, which translates into a 45x multiple for capital invested in Day 1.This investment platform with $2.8 billion in AUM offers a range of products, including pan-LatAm large and small caps as well as Chilean large and small caps and private investments in public equities, or PIPEs. With regard to PIPE, we were very pleased to launch our PIPE Chile this quarter and closed and fund with an initial $55 million raised in 1Q24 and which we believe is well positioned to scale.Focusing on our next vertical, real estate fundraising continues a solid path. Over the past 12 months, we generated over $1 billion of organic inflows, and total AUM reached $3.8 billion. For perspective, as of 1Q23, AUM totaled $1.6 billion. This organic growth included a strong 1Q24, with $235 million of new capital raised.Beyond the attractive organic growth, we continue to pursue what we believe to be great opportunities to consolidate the real estate investment trust market in the region. In November 2023, we closed our new partnership with Bancolombia, adding a $1.4 billion real estate investment trust and best-in-class distribution capabilities in the Colombian market. One month later, we announced an agreement to acquire Credit Suisse's real estate business in Brazil, or CSHG Real Estate, a platform with $2.4 billion in assets under management.Altogether, we have grown our real estate vertical to pro forma AUM of over $6 billion, with approximately 90% being permanent capital.Finally, let's do a quick overview of our newest platform, global private markets solutions, or GPMS. This new vertical focuses on serving clients as a gateway to private markets on a global scale through proprietary and third-party products.On the proprietary front, we currently offer primaries, secondaries and co-investment strategies across various drawdown funds and listed vehicles, which are permanent capital, in addition to separately managed accounts, or SMAs. With a 10- to 15-year track record, these 3 strategies, primaries, secondaries and co-investments, have generated consistent and strong returns, with pooled IRRs in euros of 18% and 20% since inception and as of 2Q23, respectively. On a pro forma basis, it manages over $8 billion in fee-earning AUM.In addition to the recently acquired business, as 1Q24, Patria managed $1.9 billion of fee-earning AUM in third-party funds, of which $1.5 billion were through feeder funds that direct Latin American capital to global private markets, a business we have been active in for over a decade. The feeder fund business has raised over $300 million in the last 12 months, with approximately $60 million raised in 1Q24.In aggregate, our GPMS platform is being launched with over $10 billion in fee-earning AUM and represents a complementary pillar of growth as we serve as a gateway for Latin American investors to private markets on a global scale.Before I hand the call over to Ana to give you more details on the numbers for the quarter, let me take a quick moment to give another perspective on the diversification of our vectors of growth.Prior to our IPO, close to $7 billion of our total $8 billion of fee-earning AUM, or over 85%, served global clients looking to invest in pan-LatAm alternatives. Today, pro forma for the pending CSHG Real Estate deal, of our $34 billion in fee-earning AUM, approximately 35% continues to be sourced from global clients looking to invest in pan-LatAm alternatives; 35% is sourced from local clients seeking to invest in regional strategies; 25% is from local investors focused on local alternative products; and finally, 5% comes from local clients investing in global alternatives. I believe this clearly illustrates the amazing job this team has been doing on executing our growth plans and diversifying our business.Now I turn the call over to Ana.

[Ana Russo, executive]

Thank you, Alex, and good morning, everyone. It was indeed a great start of the year, as Patria continues to deliver steady and strong results.As we grow and diversify our platforms, it is important to maintain and enhance the comparability of our KPIs and metrics with those of our peers. And with that in mind, we reclassified 2 line items on our non-GAAP P&L, which had no significant impact on our reported results.First, rebates originally under the expense line, Placement Fee Amortization and Rebates, are now directly deducted from fee revenue as a contra revenue item, making our fee revenues more comparable with peers. This has no impact on reported Fee Related Earnings, but does slightly increase our reported FRE margin by around 2.3 percentage points in first quarter '24 and 1.6 percentage points in 2023.Second, some realized gains and losses were reclassed below distributable earnings, and this move makes our DE even closer to a cash-based metric.Further details on these 2 reclassifications can be found on our earnings presentation, which, among other things, highlights that $1.5 million of unrealized gains that were moved from net financial income and expense to a new line called Unrealized Gains/Losses on Investments, below DE, would have decreased 2023 distributable earnings per share by only [indiscernible].As mentioned by Alex, following the completion of the acquisition of the Private Equity Solutions business from abrdn, we have now launched a new vertical, global private market solutions, or GPMS. This vertical, with pro forma fee-earning AUM over $10 billion, also includes $1.9 billion from our third-party distribution business, which was previously under advisory and distribution. As detailed on our earnings presentation, the remaining assets in advisory and distribution will be reallocated to other asset classes.With that, Patria's platform will be based in 6 verticals: private equity, infrastructure, credit, real estate, public equities and global private market solutions.Let's now review the results for the first quarter. Q1 2024 Fee Related Earnings of $35.1 million was up 13% versus Q1 2023, with a margin of 58%, reflecting an increase of 2.3 percentage points compared to last year after adjusting for the expense reclassifications noted earlier.Q1 2024 FRE was in line with Q4 '23, when excluding the seasonal and onetime impacts from fourth quarter of 2023 as our FRE continues its growth path.Total fee revenues in Q1 '24 increased by $4.5 million, or 8%, from Q1 '23 to $6.6 million. This increase was mainly driven by growth in credit fee earnings AUM as a result of net inflows and appreciation in our credit funds, which drove an approximate 20% increase in related fee revenue.Higher year-over-year fee revenue also benefited from the November '23 closing of our partnership with Bancolombia and new commitments and deployments in Private Equity Fund VII, which continues to fundraise.Excluding Q4 2023 onetime impacts, our fee revenues continued to grow sequentially. These onetime impacts were, one, crystallization of incentive fees of $4 million in our credit and public equity verticals, and two, onetime management fees catch-up of $2.5 million for private equity funds.Total operating expenses for personnel expenses plus G&A were $24.8 million for the quarter, mostly in line with Q1 '23, adjusted to reflect the reclassification noted earlier.Patria delivered distributable earnings of $31.3 million in Q1 '24, equating to $0.21 per share, $7.7 million lower than the first quarter of 2023, fully driven by $10 million of performance-related earnings in Q1 '23. We also crystallized $26.6 million of performance-related earnings in Q4 '23, which drove the variance versus the current quarter, in addition to the onetime impact of FRE mentioned before.Additionally, corporate income tax rose this quarter to $2.8 million, when compared to $1.1 million in Q1 '23, mainly due to the larger contribution from our business in Chile, Brazil and Colombia.We declared a dividend per share of $0.18 for Q1 '24, which reflects an 85% payout ratio. As mentioned previously, beginning 2024, we expect to distribute 85% of our distributable earnings, excluding performance-related earnings and realized gains from energy trading platform, net of taxes, up to $100 million in order to fund M&A obligations and pay down debt. Going forward, we will continue to evaluate our distribution policy with a focus on, one, paying a stable and growing dividend driven by Fee Related Earnings, and two, maintaining our balance sheet strength with an appropriate amount of leverage and ability to pursue acquisitions and [indiscernible] on the business.Our March 2024 balance sheet shows $83.4 million of debt, with the majority reflecting our long-term financing line, and $10 million from our revolving credit facility. This debt was incurred to fund the first tranche of our acquisition of real estate business from Credit Suisse, including related expenses. Future obligations will be funded by a combination of cash, debt and our equity.In regards to equity, based on our pending closing M&A, we expect to issue less than 4 million shares throughout the year, which would result in less than 156 million shares in aggregate at the year-end.Based on our FRE targets for 2024, this implies an FRE between $1.08 and $1.12 per share, between 10% and 12% higher than 2023 FRE per share of $0.99. However, the full year benefit of the closing M&A will only take place in 2025, where our FRE target ranges between $200 million and $225 million. That gives us an FRE per share between $1.25 and $1.40, already including any additional expected share issuances. Therefore, our compounded growth between 2023 and 2025 in FRE per share could be up to 40%.Net Accrued Performance Fees were up almost 20% versus Q1 '23, reaching $514 million, with over $300 million coming from our 2 most mature funds: Infrastructure Fund III, currently in the catch-up phase; and Private Equity Fund V, also [indiscernible]. Despite strong underlying performance, quarter-over-quarter Net Accrued Performance Fees decreased by 4%, mainly by share price of our publicly listed companies and currency. These accruals now represent $3.41 per share.As we progress in the year, we expect our management fee revenues to be supported by ongoing fee-earning AUM inflows across the platform, particularly in credit, driven by inflows in performance, fundraising in real estate, deployment in infrastructure [indiscernible] in addition to new acquisitions.As a result, we remain confident in reaching our $170 million FRE goal for this year, obtaining a margin between 56% and 58%. This slightly lower margin reflects the nature of our newly acquired and pending acquisitions. We expect FRE growth to be back end-loaded towards the second half of 2024 due to the combination of organic growth and the timing of the closing of our acquisitions.I will now turn back to Alex for closing remarks.

[Alexandre Teixeira de Assumpção Saigh, executive]

Thank you, Ana. One last thing before we start the Q&A. In light of our great 1Q24 results, multiple organic growth initiatives, the closing of our acquisition of the Private Equity Solutions business from abrdn and a good progression towards the closing of the CSHG Real Estate deal, I am even more confident we will reach both our financial and AUM targets. We are comfortable in getting our Fee Related Earnings to at least $170 million this year, on the way to more than $200 million in 2025.As we embark on our next chapter of growth, we look forward to sharing more details with you at our next PAX Investor Day, expected for later this year.We thank you for your time and are happy to take your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Craig, of Bank of America.

[Craig Siegenthaler, analyst]

It's Craig Siegenthaler, from Bank of America. So our first question is on fundraising. You raised $1.1 billion on the quarter. You're on the way to the $5 billion target this year. Based on recent client conversations and marketing schedules, how do you expect the remaining roughly $4 billion to come in during the year? And should we expect lumpy flows certain quarters when you have a larger close with Private Equity VII and Infrastructure V when those get announced?

[Alexandre Teixeira de Assumpção Saigh, executive]

Craig, I think I would divide the $4 billion equally between the next 3 quarters. Our history shows that the third and fourth quarter are a little hotter; we raise a little bit more money. I think that's basically human nature. I think its gets to the second semester, everybody has drives and goals to meet. And we also, our sales team also has goals to meet. So they actually push a little harder. And the first quarter is normally a little slower because people come back from end of the year vacation, whatever. So that has been our tradition for the last 20 years, to be honest. So I think it's going to be more or less the same pattern this year.Over the last 12 months, we raised $5.1 billion, so this quarter until the second quarter of '23. And I think we're going to maintain the same pace. So again, I would divide the $4 billion equally.We have this chunky, as you mentioned, fundraising for Infrastructure Fund V and Private Equity Fund VII, but I think they're going to be evenly distributed as we see, as you said, our schedule of road shows and people that are very, very advanced in the due diligence going to their investment committees, et cetera. We definitely see things moving more or less equally over the next 3 quarters, that's correct.

[Craig Siegenthaler, analyst]

Just for my follow-up, you guys have been very active on the M&A front, arguably more active than I think anyone predicted 2 years ago. And you're clearly consolidating the private markets industry in LatAm. But I wanted to get an update on how your objectives have evolved and how you think about dry powder, given cash, debt capacity and the stock guarantee today.

[Alexandre Teixeira de Assumpção Saigh, executive]

Thank you. I think definitely, we -- I think we manage and we are trying hard to -- are you guys there?

[Craig Siegenthaler, analyst]

Yes, I can hear you.

[Alexandre Teixeira de Assumpção Saigh, executive]

I just heard a sound. I thought the line had gone down.So going back here and repeating myself for 1 second. Yes, we have been managing to consolidate the market in LatAm. I think this is very, very important. As you know, most of our clients are global institutional clients and local institutional clients, and they want to have a smaller number of relationships globally and locally. So we would like to be that 1 relationship in LatAm, 1 or 2 relationships in LatAm. And we want to offer these clients not only 1 product of 1 asset class, but several products of 1 asset class and products of several other asset classes as well, as you saw our diversification.I think we are very well placed with what we already acquired, putting us in a very good position to continue expanding organically. And most of what we did over this Fee Related Earnings increase over the last 4 quarters were organically driven, given that we did not close any major acquisitions last year; we signed, but we did not close. And we closed the abrdn global private markets solutions business acquisition in April. So it did not -- it was not included in the first quarter of '24.So with that, I think we are very well placed. We might do other minor acquisitions, but not major. The only market still pending for us to go into is Mexico, within LatAm. We do, of course, sell our products to Mexican institutional investors, but we don't have an asset management business there with local products in Mexico as we now have in Colombia, Chile and Brazil.There, I think we're looking to get into that market and trying to find the right way and the right asset class. As we mentioned in previous calls, I think real estate is one that actually does favor our entrance there, because in Mexico they have a reasonably sizable market of real estate investment trusts, around $50 billion real estate investment trust market. So that would be the move. But nothing as major I think as the Credit Suisse real estate business or the abrdn global private markets solutions business, Craig.As far as dilution of shares, I think Ana gave -- during her call, I think she tried to give you guys and all of us Fee Related Earnings per share. And we did end 2023 with Fee Related Earnings per share of $0.99; so $1. And I think we talked personally, Craig, about that. And I think even you say, "Look, it would be great if you guys gave a Fee Related Earnings per share." But that, of course, would include not only the Fee Related Earnings in absolute dollar amounts, but also your guys' projections of shares issuance. And so the Fee Related Earnings per share combines those 2 numbers.So '24, we're expecting $1.08 to $1.12, so an increase over the $0.99, which is the $170 million divided by the number of shares that we expect to have by the end of the year, because we're going to issue some shares to do acquisitions between now -- to pay the acquisitions that we already did between now and the end of the year. So that's approximately 3 million, 4 million shares. You add to the number of shares that we have today in the base, then you use the $170 million number, it gives $1.08 to $1.12.As you know, this year we are managing actually to close on the acquisitions earlier than we expect. So we see that the probability of us reaching the $170 million number is increasing as we walk along the year, and I'll give you more news in the second quarter. If in the second quarter, we do actually have the Credit Suisse real estate funds transferred to us, I think that probability will increase even more, and we get very -- that's why I'm saying here that now I'm saying that at least $170 million of Fee Related Earnings this year. Not the target; I'm saying "at least," because of everything that I said.When we look into '25, and why would I like to use a Fee Related Earnings per share in '25? Because we are issuing the shares to pay for the acquisitions. And it's very important that we do pay with acquisitions, but then we retain those very good managers not only because these shares that these managers receive, the managers that are selling their businesses, has a long lockup of 5 years. So I need to use that. I could use more cash, but it's also very strategic for us to use the shares.But we have to issue the shares, give those shares to those people. And then the results don't come in Day 1, but the shares dilution come in Day 1. So when I look into 2025, when I have the full benefits of the whole year of the results of these businesses that we bought in our P&L, running through our P&L, and the $225 million of FRE guidance, and again, the chances that we're going to hit that are becoming higher and higher as we close these acquisitions, is $1.25 to $1.40 per share, FRE per share. So when we compare the $0.99 of FRE per share in 2023 and $1.25 to $1.40, we can see a 30%, 40% increase over 2 years, or whatever, 15%, 20% increase per year on a compounded basis.And I'm saying here that at least we're going to do these numbers because of everything that we have been able to do. So it is -- I think that, hopefully, by giving an FRE per share target as well it will help you guys, everybody to see our expectation of share dilutions, Craig.

[Operator]

The next question comes from the line of William, from Itau BBA.

[William Buonsanti Barranjard, analyst]

So I would just like to confirm some information about the 2 recently announced M&As. So regarding the abrdn one, I have a question. When should we expect it to show in your FRE numbers? So can I consider already the 2 last months of the second quarter of this year? Or will there be any deferment to the numbers? And just confirming on the CS real estate acquisition, if I can only expect to see FRE improvements regarding this one in 2025?

[Alexandre Teixeira de Assumpção Saigh, executive]

William, thank you very much for your questions. This is Alex again here. Yes, for the May and June question on the abrdn numbers. We did close this last Monday, the 28th of April. So as of 1st of May, we will then incorporate those numbers in our P&L. They're going to run through our P&L.And yes, as you know, the abrdn business has a positive FRE. Remembering that we mentioned that, just going over, I don't want to be redundant with you, but just going over to refresh our minds here. It's an $8 billion fee-paying AUM business. If we consider that it has around 35 basis of...Do you want to? Go ahead, Marco. Why don't you say, Marco? Marco is here with us, and I think he can continue here. So, do you want to do the math?

[Marco DIppolito, executive]

30 to 40 basis points. $8 billion of fee-paying AUM. That gives you a guidance of the fee-paid AUM accretion.

[Ana Russo, executive]

With 30%, this is a 30% margin. So we have approximately -- we're looking to a full year impact about $11 million. That's what we're talking about in FRE. Basically looking [ to our portfolio rates ], we are talking about, like, $5.5 million approximately of FRE in terms of quarter base. But as Alex mentioned, it's 2 months that we're going to consider as of May, which is going to be already accounted in our results.

[Alexandre Teixeira de Assumpção Saigh, executive]

And then for your second question, I think conservatively we are expecting the Fee Related Earnings from the Credit Suisse real estate business as of '25 or end of '24, which basically insignificant, but '25 onwards, so conservatively that's what I suggest to use, William. We are in the middle of the process of transferring the funds from the Credit Suisse administration to our administration. As you know, we have to do this shareholders' meeting, and we are going through the process. The process is going fine. We got all of these -- of course, all the completions precedents were in place. So we started this shareholders' agreement process.And everything, again, is moving okay, but it's very hard to say where we're going to land. So conservatively, I would say 2025. I'll keep you guys updated on that as we move along the quarter, but I would start with 2025 as a baseline, okay?

[Operator]

Your next question comes from the line of Beatriz, from Goldman Sachs.

[Beatriz Bomfim de Abreu, analyst]

So my question is on expenses. So we saw an increase in both personnel and G&A expenses this quarter. If you could give us a little bit more color on what happened there and if we should expect that as a normalized level, going forward? And maybe as a second question, you should be reflecting abrdn's acquisition in the last 2 months of this quarter, 2Q, now that it's closed, and that certainly should add more variables to the equation. But what are you expecting in terms of FRE margin, going forward?

[Ana Russo, executive]

This is Ana. So I just want to refer as well to our deck just so we are clear with the numbers we are looking at. So our personnel expense line goes from Q1 2023 of $16.8 million to $16 million, and our G&A has an increase from $7.6 million to $8.8 million. So when we're looking overall, there is a slight increase of 0.4%, overall, when we talk about operating expenses. But in terms of personnel expenses, there is a positive impact, or slightly almost, as we mentioned, that these could be a proxy for the next quarter, as we mentioned last quarter. $16 million includes our equity compensation program as likely, and also there is as we progress in our business some outsourcing from personnel expenses to G&A.Also, our G&A includes, as we mentioned, this quarter more investment on the [indiscernible]. We have a higher marketing and commercial activities, which is reflected in G&A. This is sometimes when we look into the year it's seasonal because there are some quarters that are seasonal. We have more activities than the others. So you can see that there are related expenses.And on top of that, this quarter we have -- we are accounting for [indiscernible] weeks expenses compared to the first quarter 2023 of [ Fund Colombia ], which impacts both revenue and the expenses line as well. So this also includes something when we talk about inorganic expense.

[Alexandre Teixeira de Assumpção Saigh, executive]

I think the second question was on the FRE margin.

[Ana Russo, executive]

If we look into. So what we mentioned during the -- actually on my pitch, that we think that the margin could be between 56% and 58% for the year. That mostly is accounting for the nature of the new business we are including and we are acquiring, which has a lower FRE margin than our current business. That's the reason we also, when I mentioned about going forward, we think that there is a consolidation phase. In the future, this margin should actually progressively going up. But for this year, we think about it between 56% and 58%.

[Alexandre Teixeira de Assumpção Saigh, executive]

What has happened over the last years, Beatriz, and this is Alex here, and again, thanks for your question, and thanks for participating, we had when we went public a margin of around 60%, or 60.9%, 61%. And then as we did the Moneda acquisition, the margins came down to around 55%, 56%. And then we did of course run after the synergies. Margins went back up to close to 60%. And then we did other acquisitions. Margins came down a little bit. And then last year, the margins were around 61% again. As you may recall, we have not closed on any acquisitions last year. So it was a year of integration that we managed to push the margin for the whole year of 2023 back to over 60%.So this year I think and next year, 2025, I think it's going to be the same path, and this year is going to be a little bit compressed downwards, as Ana just mentioned, 56% to 58%, because we're taking on these acquisitions, we have redundancies in the first moments, and we have a little lower margins in the first moments because the businesses that we acquired were run by these other firms that own them, Credit Suisse and abrdn, differently and with lower margins. And as we put them into our business and incorporate, we gain synergies.So I definitely see that we're going to go back to the 60% margins as we look into '25 onwards. But this year, specifically, because of these 2 acquisitions, margins are a little bit compressed downwards. But we already identified this. To be honest, this is what we do for a living in our private equity shop. We did over 300 acquisitions. We consolidated more than -- I don't know how many sectors. You probably know the story there. And so we feel very comfortable in this model of doing acquisitions and then we have integration of systems, integration of processes, integration of culture and people. And then we bring margins back up. It's something that I did as the CEO of several of our portfolio companies in the private equity, the asset class, and what I'm doing now here with the same team: Marco, Ricardo, Daniel and Ana and whatever.So we feel comfortable with this model and I feel comfortable we're going to get back to the 60% margin next year and going forward.

[Marco DIppolito, executive]

Just for the sake of clarity here, this is Marco, as you build up your model and you look to your presentation on Page 13, where you have asset by asset, as Ana put, we have reclassed the assets and now you see GPMS there with $1.9 billion. What you're going to see in the next quarter is we're going to aggregate $8 billion to that $1.9 billion, or at least $8 billion. And the average fee-paying AUM is 50 to 60, and the margin is between 30% and 40%. So what you're going to see...

[Alexandre Teixeira de Assumpção Saigh, executive]

50 to 60 basis points.

[Marco DIppolito, executive]

Basis points. And the margin, the FRE margin, is 30% to 40%, okay? So I thought it would be important to provide full clarity here as you build up your model.

[Alexandre Teixeira de Assumpção Saigh, executive]

And I think my final comment here, Beatriz, I think long answer to your question, but I think I would like to add another comment here before we turn to another question.The whole idea was back then, prior to the IPO, I think, is to have other asset classes that for Patria are significant and has a scale and therefore also has margins. So private equity was already there. We already had a reasonable big asset class at that time. It was around 45% of the $8 billion fee-paying AUM. Now it's around $11 million. So it basically doubled, more than doubled.Infrastructure is the same. Sizable, and we reach more size. And with the new vintage fund, Infrastructure Fund V, even more so.Then we built a very significant credit vertical that's around $6 billion today, and with fundraising should end the year with around $7 billion of fee-paying AUM there in credit, where we have a good amount of private credit, infra private credit, mid-market high-yield Brazil private credit. Now we have a dollar-denominated LatAm private credit. All these products we launched, of course. Agricultural receivables, a discount private credit fund in Brazil, we launched of course with the intelligence of our Chilean partners. So that's going to become $7 billion, and I see that asset class also moving ahead of $10 billion, together with the private equity over $10 billion, infrastructure over $10 billion.Then comes the real estate, and we did several acquisitions there. And with the VBI acquisition that we did and also the Credit Suisse real estate acquisition that we did, it's already a $6 billion, $7 billion asset class, and I see that as also going to over $10 billion. We haven't even touched Mexico. As I mentioned earlier here in this call today, the real estate investment trust market in Mexico is a $50 billion market, and I think is very ripe for us to participate in that market.Finally, now GPMS, already starting with over $10 billion. So another. So that's asset class number 5 that I see $10 billion-plus in the near future, with very, very good margins. Because that kind of numbers that I gave you gives scale and we manage then to push margins back to the 60%.So private equity, infrastructure, credit, real estate and GPMS. So that's what we're trying to do. Instead of having 1 or 2 asset classes that were significant for us, private equity, again, 45% of $8 billion, infrastructure was also around 45% of the $8 billion at IPO, we have 5 asset classes that I see $10 billion-plus, going forward, with very good margins and very scalable in LatAm.So that was the whole strategy: go into other asset classes that we have a very large tangible addressable market that we can become significant and we can scale up, with a magic number that I gave of $10 billion-plus. And with that, margins come up again to the 60% FRE margin. So that's the vision. And I think we're there. Now it's more execution. I think we already have our major asset classes acquisitions done, as I responded to Craig earlier in this call here today.Thank you, Beatriz. So sorry about the long answer.

[Operator]

Your final question comes from the line of Ricardo, from BTG Pactual.

[Ricardo Buchpiguel, analyst]

I have a couple of questions on my side. First, we saw that during the quarter management fee yield over this year [ in AUM ] declined around 12 bps, to 1.07% in Q1. So I wanted to understand what happened there, if it's something because of mix, if it's something because of an adjustment in certain segments, and what a sustainable level would be, assuming the abrdn acquisition and without, just for us to see what happened, right?And also, now that the abrdn acquisition is approved, I imagine that capturing all the top line synergies should take some time, right? So I wanted to understand a little bit more on what environment the company is right now in terms of inflows, in terms of AUM growth, especially for this year.

[Alexandre Teixeira de Assumpção Saigh, executive]

Thank you very much, Ricardo. Thanks for participating here in our call.Okay. So the management fee yields, as you saw here in Page, for everybody to be in the same page, it's Page 13 of the presentation, yes, I think it's a question of mix, so answering your question. We gave the guidance that we were going to raise around $5 billion in 2023. We raised $4.8 billion. We gave those numbers in our fourth quarter '23 call in February. And we raised within that $4.8 billion more real estate than we expected, more credit than we expected. And those 2 asset classes, if you look here through Page 13, you see that these 2 asset classes do have a relatively lower fee than the other asset classes, as compared to private equity and infrastructure.As we do, we raise a lot of infrastructure as well, but we have to deploy that one. For real estate and for credit, Ricardo, as we raise the money, we already start charging fees because we charge on the NAV. Most of these funds are listed funds, which in the case of the real estate investment trust, [ FEEEs ] in Brazil, as you know. And credit, as you raise the money, you already start charging fees on that amount.Infrastructure, we did raise and private equity also a substantial amount of money as well, but you have to invest that money to charge fees because we charge on invested. So as we then invest the money throughout 2024, the money that was raised in 2023, then we will see the margins pick up a little bit because of that -- sorry, the average effective management fee rates.But going to your other question, which is important here, as we do the GPMS acquisition that has, as Marco mentioned a couple of minutes ago, a lower fee, where do we land with all these moves? Now we're going to -- our view is that we're going to land 2024 with a very similar effective management fee rate that we have here today, because we're going to be investing, as I mentioned, private equity and infrastructure that we raised that have a little higher fees, but we will then incorporate GPMS that has a little lower fees.So as we do our projections here, Ricardo, we're going to land 2024 with similar numbers that you saw here on Page 13, okay? Because these are now 2 events here pushing a little bit the effective management fee rate up, for the GPMS pushing the effective management fee rates a little down.On the AUM growth for GPMS, we were very conservative, so we didn't project much for this year, because it's a carve-out business [indiscernible]. Taking on a business that you're carving out from another business is different than buying the business by itself, because there are more complications there on the systems side, on the integration side, et cetera. And we had, and I'm congratulating Ana here and her team, a flawless execution on that. Monday, everybody was up and working under our systems. They were already having our -- managing to collect all of their prior data. We have over 14 terabytes of information transferred from abrdn to our system, blah, blah, blah. So you think great preparation.Not only I congratulate Ana and her team, but I also thank the abrdn team that actually worked with us so diligently. They were really great guys, with a very positive agenda, wanting to make this thing actually to go as fast as possible. A very organized firm and a very prepared firm, abrdn.So we didn't project much. However, as we did talk to the investors -- and here it's interesting to say that 100% of the investors approved the change of control, 100%. Now it's hard to get 100% in anything, right? So all of the investors were in favor and supporting. We could not fundraise during that period up to this Monday, Ricardo, because we had not closed the deal. However, of course, you're there talking to LPs and to investors and asking them to approve the change of control. We also asked them their appetite for supporting us in the near future, and we got very positive results from those conversations. So we were very pleased that not only 100% of them approved the change of control, but the feedback that we got from them was very positive. "If you guys come out to the market, we would support you," blah, blah, blah.It has to do as well with the fact that secondaries and primaries, and co-invests, mainly secondaries, is a hot product at the moment, right? Credit, real estate in Brazil because interest rates are projected to come down and GPMS, mainly secondaries, right, because we are here in the secondaries, as you know, is actually giving liquidity to general partners and LPs that are willing to come out of funds. Given that DPI has been slower globally, these GPs and LPs are looking for liquidity, and that's how a secondary fund comes in and provides that liquidity. So that's why it's a sought-after product, right? Because it's the moment for secondaries. For the credit, because of the high interest rates.Real estate in Brazil, because interest rates start coming down. And you probably followed our real estate investment trust. We're trading at a small discount a year, 1.5 years ago of 10% to 15%. Now they're trading at a premium.And number three, secondaries, right? So of course they liked the team, because 100% of them approved the change of control. Of course they said they're going to support us, which was very, very good. And also it has to do with the fact that it's a hot product under this market environment that we're living, okay?Now as the closing happened, we are going to be able to do official fundraising, because we couldn't, we were prohibited by the regulatory authorities, and we're going to have a better view. And I'll keep you guys posted, but we were very pleased.As far as our projections are concerned, again just to repeat, we were conservative and we did not project much fundraising for this product this year.

[Marco DIppolito, executive]

So to complement one topic here, bear in mind that most of this fee-paying AUM is paying fees over NAV, and the natural appreciation of the assets will incorporate into the revenue of the business. So that's also because the unit has been performing quite well, with 20% returns on secondaries and co-investments and about 16% returns on primaries, that is a meaningful contribution to the fee-paying AUM.

[Ricardo Buchpiguel, analyst]

So if I may do a quick follow-up here on another topic, we saw that during the quarter the level of deployments in private equity and infrastructure declined a little bit. So it was previously around $100 million, and it was around $400 million, if I'm not mistaken, in Q1. So I wanted to understand if that is something that, a deceleration that happened only for a quarter and we should see the pace closer to the previous quarters, going forward? Or we should see like kind of a more structured deceleration in terms of deployment?

[Alexandre Teixeira de Assumpção Saigh, executive]

No, it's just a coincidence that it happened in this quarter, what you just described, Ricardo. There's nothing more to it, to be honest.And I think there is, in general, you're going to see the first quarters are a little slower. And again, don't ask me why, but I think there's a big human nature factor there. People get close to the end of the year, they want to close a deal. They have goals to meet. And not only the seller wants to sell, the buyer wants to buy and the advisers want to get their fees. So everybody kind of pushes in the right direction to close the deal. And then the first quarter is normally quieter. But that's more or less the path.Even on the privatizations and concessions, maybe the government has the same kind of human nature trait. They don't do much concessions and privatizations in January and February. I think it has to do with everything that I said.So the year starts picking up as of March, April. It's a natural circumstance, nothing to report there besides it's something natural. Nothing structural going on, Ricardo.As they say, Ricardo, Brazil starts off the [indiscernible].

[Operator]

This concludes the question-and-answer session. I would now like to turn it back to Alex Saigh for closing remarks.

[Alexandre Teixeira de Assumpção Saigh, executive]

Well, thank you very much. I think the final message here again is FRE per share. That's, I think, the number one, two, three message here. Growing FRE per share very healthily this year versus next. And again, the FRE per share for this year of $1.08 to $1.12 per share, compared to $0.99 last year, is affected by the fact that we issue the shares, but we don't get the full benefit of the acquired assets. So as you look into next year, 2025, that we have the full year of the acquired assets running through our P&L and of course then reflecting them in our FRE, we're projecting $1.25 FRE per share to $1.40 FRE per share, which is the $200 million to $225 million FRE number that I gave you guys.And I'm very confident with those numbers. But even if we look at these numbers here, the $1.40, the $225 million, versus the $0.99, we are increasing FRE per share by 40% between these 2 years, '24, '25. And so we're comfortable there. We're comfortable we're going to hit the numbers.I think using the FRE per share I think answers a lot of the questions on potential dilution for acquisitions. And going back to the strategic instruments of using shares for acquisitions, it's not a question of just capital structure. It's strategically important for us to retain the manager, the portfolio manager, that comes along with these acquisitions as we do lock up these shares for 5 years, et cetera.So we have -- it is a very important instrument, compensation, retention and acquisition instrument. Even if we had all the money possible in the world in our balance sheet, I think we would still use some shares in order to retain those people, as we are a very people-driven business.So thank you very much again for your time. And I know that it was a very, very busy day today. So you guys being here in our call is an honor to us, because other of our peers and other companies are releasing their results. So again, thanks for your patience. Thanks for your support. I hope to see you guys in person. Thank you. Bye-bye.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.