Patria Investments Ltd

NASDAQ:PAX

Earnings Call Transcript 2021-Q4

[Operator]

Good day and thank you for standing by. Welcome to the Patria Fourth Quarter and Full-Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I will now like to hand the conference over to your speaker today, Josh Wood, Head of Shareholder Relations. Please go ahead.

[Josh Wood, Head of Shareholder Relations]

Thank you. Good morning, everyone, and welcome to Patria's Fourth Quarter 2021 Earnings Call. Joining today are our Chief Executive Officer, Alex Saigh, and our Chief Financial Officer. Marco D'Ippolito. Earlier this morning, we issued a press release and earnings presentation detailing our results for the fourth quarter and the full year, which you can find posted on our Investor Relations website at ir.patria.com or on Form 6-K filed with the Securities and Exchange Commission. Any forward-looking statements made on this call 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 20F annual report, with our 2021 filing to be completed in the coming weeks.

Also note that no statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any Patria fund. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards or IFRS as opposed to U.S. GAAP. Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable measures calculated in accordance with IFRS are included in our earnings presentation.

As a quick overview of the results Patria generated fee related earnings of $29.3 million in 4Q '21 and $86 million for the full year, including performance-related earnings of $58 million [Indiscernible] earnings for the full year 2021 were $141.3 million or $1.02 per share in line with our guidance, distributable earnings for the fourth quarter were $27.7 million or $18.8 per share, and we declared a dividend of $0.16 per share payable on March 16 to shareholders of record as of March 2, bringing our full year 2021 dividends to $86.9 per share. Note that Patria's combination with Moneda Asset Management closed on December 1, 2021, and our P&L reflects the proportional impact from Moneda only for the month of December. Marco will provide more detail on this in his commentary. Our reporting for total AUM and fee earning AUM reflects the year-end levels for Moneda. And we have enhanced our reporting on these metrics to provide a breakout along asset class lines. With that, I'll now turn the call over to our Chief Executive Officer, Alex Saigh.

[Alex Saigh, Chief Executive Officer]

Thank you. Josh. Good morning, everyone. We hope that you are all well and safe and it's great to be here with you again today. Just a few weeks ago, Patria celebrated the one-year anniversary of our IPO on Nasdaq, and it has been an incredible year of growth for our firm. Our investment platform is significantly larger and more diverse than it was a year ago. Our earnings have grown impressively, which of course accrues to our shareholders. And we have also grown in maturity as a firm, adding new talent in key areas and making significant advances in our corporate governance, as we navigate this journey as a public company.

I'm honored with the privilege of leading such a dedicated group of people and excited for what we can accomplish moving forward. Just to put a finer point on what we have accomplished in this first year. Our 2021 fee revenue grew by 27% year-over-year, driven by a record phase of deployments with more than $2.5 billion deployed from our drawdown funds. We delivered $86 million of fee-related earnings in 2021, which represents year-over-year growth of more than 50% on a comparative basis.

With continued value creation across the portfolio, our net accrued performance fees increased by $348 million, up 26% from one year ago even after realizing $58 million of performance fees during the year. As we guided you last quarter, we deliver just over $1 per share of distributable earnings, of which 85% is distributed to our shareholders. This equates to a yield of 5% on our IPO price, which we believe is among the best use in our sector for 2021. And it's four times the dividend yield on the SAP 500. Finally, with platform expansion as a major goal, we completed our first M&A transaction with Moneda Asset Management, which brings us a leading regional credit platform and adds critical expertise in pan Latham and Chilean equities. We also recently announced an agreement to partner with Kamaroopin (NYSE:KMP) in the launch of our growth equity strategy. Listen to our commentary over the course of the year, you have heard us talk a lot about inherent resiliency of the business model and how it allows us to thrive in times of volatility, especially investing in a region like Latin America. These results and metrics for 2021 are a perfect representation of that.

The ability to grow our revenue earnings at a high rate over the last year underscores an important point, which is true for our entire sector. Asset managers with long term capital can do some of their best work in times of market dislocation. We believe these are good times to deploy capital and for Patria, deployment translates directly to management FRE growth. If the environment is flipped to the other end of the spectrum and it's a better time to sell than to buy, you may see the appointment pace slow, but portfolio realizations will then also likely rise, generating more realizations for our LPs and higher realized performance fees for our shareholders. That structural balance in our revenue streams allow us to create value for our shareholders through the peaks and troughs of economic cycles and everywhere in between.

Despite the headlines and equity market volatility worldwide, the major economies in Latin America held up well in 2021 as well as in early 2022. Higher asset prices reflected receiving pandemic together with constructed fiscal and monetary development. On the health ones, vaccination rates in the region now surpassed much of the world. While in the fiscal area, there was a sharp reduction of budget imbalances in key economies like Brazil. Inflation trended higher in Latin America sooner than other regions forcing central banks into a head-start on the fight by raising benchmark interest rates in the first half of last year.

And now it seems maybe cresting the cycle as other regions and economies are only beginning the tightening process. We have seen local currencies appreciate in recent weeks and it is possible we are moving towards a more benign scenario that will provide momentum to ramp up our divestment activity. Looking across the platform, our flagship private equity strategy made strides in all phases of the investment cycle in 2021. We deployed more than $1.6 billion driving management fee growth and positioning ourselves to raise our next vintage fund well ahead of schedule.

We indicated last quarter there was room for one additional allocation out of our Private Equity Fund VI, and indeed we've committed nearly $400 million in the fourth quarter into our agribusiness, cybersecurity, and grocery retail thesis. In a year that was particularly difficult for divestments, we also successfully sold our staking Alliar, allowing us to realize $58 million in performance fees from Private Equity Fund III. Our overall private equity portfolio continues to perform very well with underlying investments appreciating more than $1 billion and ending the year with a combined $266 million of net accrued performance fees. In infrastructure, our team continued to capitalize on the vast opportunity sets in the region, deploying more than $750 million in 2021 from infrastructure fund for. About $300 million of that came in the fourth quarter, driven by our success in Brazil's 5G spectrum auction, where our telecom platform, Winity, want to concessions to build more than 5000 towers and distribute mobile coverage to operators through an innovative wholesale model. The strategy also saw meaningful expansion last year in control roles and data centers, areas where we can see attractive dynamics and opportunities.

The performance fee potential of the infrastructure platform is also emerging. When net's accrued performance fees up to $81 million at year end, more than three times the accrual from one year ago. With the Moneda combination complete, credit becomes the third major strategy vertical in our platform with $5 billion of AUM. Already here in the New Year, we are hard at work introducing Moneda's products to our global investor base, and we are excited about the potential for this asset class in the region. Moneda's largest product is Latham high yields credit, which is both denominated in U.S. dollars and also invest in U.S. dollar-denominated fixed income. The primary funds in this strategy returned 10.5% in 2021, outperforming its benchmark by more than 800 basis points and underscoring how these credit strategies can thrive in a rising rate environment. Over the 21 years since inception, the fund has outperformed its benchmark by nearly 400 basis points, a long and impressive track record for attracting global cap. To solidify Patria as the leading diversified asset manager in Latin America.

Our aim is to build a platform that global investors will view as a comprehensive package for allocated capital to the region. Likewise, we want to acquire or develop products to attract more local capital and leverage the long-term financial deepening playing out in our own backyard. Moneda advances that goal not only through a world-class credit platform, but also with [Indiscernible] expertise in public equities and greater geographic reach and distribution capabilities in the region. With our pending acquisition of Kamaroopin, we are also laying a foundation for a growth equity vertical that will be highly complementary to our flagship private equity strategy. These are great strides in our first year post-IPO, but in my view, we're just getting started. Now let me close with just a few words on our goals in the year ahead. We told you that we expect fee related earnings to increase by more than 50% from the $86 million we delivered in 2021.

We are set up very well to meet these targets, and leadership across the firm is aligned and focused on delivering their budgets. Fundraising is a top priority as we enter another major cycle. We are in the process of raising our next vintage flagship private equity fund, with the initial closing taking place here in the first quarter. We're also raising our first dedicated renewable energy fund with our next flagship infrastructure fund soon to follow. Our sales team is on the road and highly engaged with our LPs across the globe to drive much higher influence than we saw in 2021, which was more of an off-cycle year. Investment performance is everything in our industry and never out-of-focus.

Our portfolio teams are executing on our business plans to deliver the continuous stream of value creation, but sustain our track record. This year, we aim to move earlier vintage funds like Private Equity Fund V, which is currently generating a 27% net IRR in U.S. dollars further into a harvesty phase and into a position to monetize the performance fees accruals. We will continue to pursue strategic M&A opportunities to further expand and diversify our platform. We see interesting opportunities from both an asset class and geographical perspective. And we will be diligence, but persistently with efforts. [Indiscernible] this year, I want to again, thank our entire team for delivering great results in 2021 as well as our limited partners. And of course our shareholders for your confidence in Patria as steward over your capital. Our business is built on performance and trust, and we know that we must deliver one to earn the other. I'll now turn the call over to Marco.

[Marco D'Ippolito, Chief Financial Officer]

Thank you, Alex, and good morning, everyone. Patria's results for 2021 demonstrate our attractive earnings growth trajectory. And we move into 2022 with strong momentum looking forward. Fee related earnings for the full year 2021 were $86 million, comfortably exceeding our guidance of more than $75 million. And we generated a margin of 59% for the full year. FRE is up 21% from 2020 as reported, or up 52% when adjusting the prior year for a comparable compensation structure, a more apples-to-apples comparison. For the fourth quarter, we generated $29.3 million of fee-related earnings, at a 63% margin compared to $20.2 million in 4Q '20. We announced the closing of our combination with Moneda on December 01, 2021, and Moneda contributed $6.5 million to our fee related earnings in the final month of the year. Adding the $58 million of performance-related earnings from earlier in the year, we generated $141.3 million of distributable earnings of more than 150% in a comparable basis from 2020, an equivalent to $1.02 per share.

Distributable earnings for 4Q '21 were $27.7 million or nearly $0.19 per share, which results in a dividend of $0.16 per share for the quarter. This brings our total 2021 dividend to nearly $0.87 per share, which is 85% of distributable earnings per share per our policy and results in more than $120 million of earnings distributed to shareholders in our first year post IPO. The top line is driving our earnings growth, with fee revenues up 27% in 2021 compared to the prior year. Our fourth quarter '21 management fee were $42.1 million, up 42% compared to fourth quarter '20, which further demonstrates the baseline momentum we carry into 2022. Moneda added $9.1 million of overall fee revenue in December, including the incentive fee of $4.9 million. Personal expenses for the full-year 2021 were $43.7 million, with $1.2 million of that attributable to Moneda in December.

That compares to $26.8 million as reported for 2020, but adjusted for comparable compensation structure and excluding the Moneda fees, our organic compensation grew at a rate about 3% year-over-year. There is some effect from local currency devaluation there and we would expect personal expenses on an organic basis to grow at a higher rate closer to 10% in 2022. plus the addition with Moneda. Administrative expenses for full-year 2021 were $14.1 million with $1.1 million related to Moneda. Excluding the Moneda portion, admin expenses were down 11% from 2020. Much of which can be attributed to a lower travel-related costs in the pandemic environment, and also the impact of local currency depreciation. We would expect admin expenses to rise as more normalized travel agendas resume, which all things consider, we hope happens in 2022. Net accrued performance fees ended the year at $348 million, up 11% from last quarter, driven mostly by appreciation in the Infrastructure Fund III, a 2014 vintage fund, which now has net accrual of $75 million as it moves further into carry.

The balance is up 26% compared to one year ago and accounting for the $58 million, we realized from Private Equity Fund III during the year, the overall net accrual grew by 47% during 2021. Our latest fund continued to perform very well led by Private Equity Fund V, with a net IRR of 27% as it moves into the harvesting phase. While they are earlier in the life cycle, Private Equity Fund VI and Infrastructure Fund iV are generating 21% and 34% IRRs respectively. We feel great about the position of our portfolio and ability to generate larger amounts of realized performance fees as these funds continue to mature. Turning to AUM, total AUM of $23.8 billion at the end is up 65% from the end of 2020, including the addition of Moneda platform. You'll see in our presentation that we have enhanced our breakdown of AUM by asset-class. In our AUM bridge schedules for the quarter and the full year, note that Moneda's platform is recognized on a sap rate acquisitions line for the initial inflow.

From year 2021 onwards, Moneda activity will be reflected in the normal bridge line items. Given we are raising our next flagship Private Equity Fund during 2022, you can expect more fundraising-related growth in total AUM compared to 2021. as the dry powder will be recognized when capital is committed in each individual closing. Fee earnings day one was $17.9 billion as of year-end 2021, up 132%, including the addition of Moneda and up 20% on an organic basis reflecting the similar growth rate in our revenues for the year. As Alex noted, our record deployment phase in 2021 was the driver of fee earnings AUM, and revenue growth. And we deployed an additional $733 million in the fourth quarter. Nearly $400 million of that amount was in private equity, where fees are based purely on deployment.

And that amount will flow into fee earnings AUM, and begin to earn management fees here in the first half of 2022. Another $300 million of debt fourth quarter deployment was from our fourth infrastructure fund, where the fee structure is a split with half charged on commitments and half on deployment. In this case, this amount was already included in the fee earnings AUM, but we will still drive incremental management fees in the first half of 2022, due to the portion charge on deployment. Given the increasing diversification of the platform, we're also adding some additional information on fee earnings AUM, by asset class in our presentation. The goal is to provide color on the structures and key drivers for each bucket and allow you to more easily frame each piece on our forward-looking basis. Our 2022 fee related earnings guidance is unchanged. We expect FRE to increase by more than 50% from our 2021 results with an FRE margin in the low 50% range. As we think about that progression by quarter, remember a few important points.

First, our flagship Private Equity and Infrastructure Funds charged management fees twice a year based on the updated fee basis. You can expect to see the incremental P&L impact of ongoing deployment and divestments in the first quarter based on activity in the prior six months and then again in the third quarter, which you can relate to my comments on recent deployment just a moment ago. And second, incentive fees generated by Moneda 's products are included in the fee-related earnings as they are measured and charge on a periodic basis and do not require divestment events to be realized. These incentive fees generally crystallize at the year-end as a fourth quarter event. Our baseline assumptions for the guidance assume that about 10% of the overall fee revenue from Moneda products will be in the form of this incentive fees, so that is important to know as you think about timing. Note that incentive fees are not included in our disclosures on a factored management fee rates in the presentation. I will close by reiterating, Alex's messages that we are very pleased with our 2021 results and proud of the Patria team for their diligent work across all aspects of the business. One-year forward from the IPO, we have already used the capital to expand our platform, and the table is set for us to deliver powerful growth again in 2022. We greatly appreciate the support from all of our shareholders, and we look forward to talking with you again soon. We're now ready to take your questions. Thank you.

[Operator]

[Operator Instructions]. Please stand by while we compile the Q&A roster. Our first question comes from the line of Robert Lee from KBW. Your line is now open. Pardon me, Robert Lee from KBW. Your line is now open. Please check your mute button.

[Robert Lee, Keefe, Bruyette & Woods]

Sorry. Sorry about that. Thanks so much for taking my questions. I appreciate it. Wondered maybe focus initially on fundraising. So we talked about having a first close, I guess, in the first quarter and the next PE Fund. But I guess my first question is, you've talked previously about 50% upsizing on the PE fund and hopefully when you start on the infrastructure fund. Any reason to think that's not kind of where you're headed? And I'm also curious about your LP mix. Any kind of color on what you're seeing so far on re-ups from existing clients versus how much of the fund you think could come from new investors with the Patria.

[Alex Saigh, Chief Executive Officer]

Hi, Rob. This is Alex here. Thanks for your question and hope you are well and safe. I think everything that you said is as in -- on line with our expectations. I have to be a little careful here because as we are fundraising for our next flagship Private Equity Fund, I was invited to give a lot of details because we in fundraising [Indiscernible] and we have [Indiscernible] filed our prospectus. But it's -- everything that you've said is on -- is basically in line with what we expect. Josh, should we give any more color here or are we fine here?

[Josh Wood, Head of Shareholder Relations]

I think that's good Alex, mean that's -- everything is in line with what we said, relative to prior expectations, Rob. And as you said, we're having first closings here in the first quarter, I would just add that with our first quarter earnings report, which will be in May, you'll be able to see the amount that was raised as of the end of the first quarter.

[Robert Lee, Keefe, Bruyette & Woods]

I'm sorry, I didn't mean to cut you off.

[Alex Saigh, Chief Executive Officer]

Sorry. Last comment on the client profile that you ask. Again, I think pretty much in line with prior funds, where we have around 70% to 80% coming from re-ups and 23% coming from new clients. As in the past, I see that this time around, we're going to be able to see the same kind of breakdown that I just described. That was the second part of your question.

[Robert Lee, Keefe, Bruyette & Woods]

Yes, it was, thank you so much. And maybe just as a quick follow-up, and you're sticking with the fund raising theme. Could you update us possibly on your thoughts around fund raising around listed permanent capital vehicles, how do you feel about it, at least maybe over the first half of the year?

[Alex Saigh, Chief Executive Officer]

Yeah, I think this is a strategy that we are pursuing aggressively. As you know, we're thinking of pursuing permanent capital vehicles in general for the four asset classes here that we do manage: private equity, infrastructure, credit, and real estate. I think we can do it basically both ways, through listings in the local stock exchanges and, for example, in the case of real estate, we do have to list the funds in the Brazilian Stock Exchange, B3. We also can do it through listing of infrastructure investment trust, as we have one also listed in the Brazilian Stock Exchange, and we are also looking to list some of these vehicles in international stock exchanges I mean, Nasdaq are also looking at the London Stock Exchange to do a listing there. As you probably know, we have already talked to you guys about this. So yes, I think it's a very interesting structure fund.

And we are pursuing, we already have three funds of I mentioned down there in Brazil, in India, in the Brazilian Stock Exchange. And we also look for buying these permanent capital structure funds through acquisition, through M&A. And if we do pursue M&A opportunities in the real estate arena within real estate, there is several permanent capital structured funds in the region that were listed in the main stock exchanges in the region, Mexico, Colombia, Chile, and Brazil. So we can also add these kind of funds, not only organically, as I mentioned, but also through M&A.

[Robert Lee, Keefe, Bruyette & Woods]

Great, that's very helpful. Thanks for taking my questions.

[Alex Saigh, Chief Executive Officer]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Craig Siegenthaler from Bank of America. Your line is now open.

[Craig Siegenthaler, Bank of America]

Good morning, Alex, Marco. Hope you both doing well.

[Alex Saigh, Chief Executive Officer]

Good morning, Craig. We're all well, thank you.

[JMarco D’Ippolito]

Yeah. Nice to talk to you. Hope you are well and safe as well.

[Craig Siegenthaler, Bank of America]

Nice to talk to you guys too. On the macroeconomic front, we're actually seeing a divergence here, where the U.S. economy inflation, the [Indiscernible] there has been deteriorating over last few months, while in Brazil has started to rebound. So I know this is just a few months, but can you remind us how your business will be impacted if these trends continue? And I'm especially thinking that a lot of your LPs are in the U.S. and Western Europe, and they might be possibly positioned for the rebound in Brazil here.

[Alex Saigh, Chief Executive Officer]

Oh, Craig, thanks for the answer. And we do have also Liz Fernando, [Indiscernible] head economist with here -- with us here today so he can help me answer this question. But in summary, straight to the points, now diversification space. And I think our investors are really sure about that and you can see exactly what you're saying. Last year, we had some economies in the developed world performing well, very well, some economies in the developed side of the world or developing side of the world now suffering here or there, but I think more from headline news, negative headline news than actual data. When you cut into the data, you can see that these economies have actually done their homework.

They were responsible on the fiscal side. If you look at the main economy, the region which is Brazil, what a year on the fiscal side, right? We had first in the last 15 years, and Luis Fernando here, my -- our Head Economist can correct me if I'm wrong, but we have actually a surplus federal and state, and we reduced our gross debt to GDP to 80% and several economist are predicting that we're going to hit a 100% gross debt to GDP in Brazil. In Chile, economy grew 12% last year, and now predicted to grow if things are right here, fleets of 4% this year. And again, for projections, were that Chile would grow a lot less than the 12% last year. And so no fiscally responsible governments monetarily straight to the point central banks raising rates before the main economies in the developed side of the world. So I think we are heading to a more controlled inflationary environment and you can see that looking at the yield curve. The yield curve's starting to actually look with a negative trend, and so we might get out of this earlier and economies might start more growing healthily again.

With that, I think it's of note that -- sorry, I forgot to say the depreciation of the currency has, so everything that I'm saying is a great moment actually to invest in the region. We saw record foreign direct investment in Chile last year, same in Brazil, not record, but very healthy and know -- and the carry trade looks good for the currencies, right? Now, you can borrow money at zero interest rates all over the world and invest in Brazil with rates going to now over 10%. So it's a good carry trade. That actually stabilizes the currencies in the region, or even actually makes them appreciate as you can see in the recent weeks and months. It's a very benign environment for us for investors to invest, and a very good environment for us to divest. What I tried to mention during the call here is that's what this is, this scenario persists. I think it's a good invest -- a good scenario for us to divest and reach our goals and performance fees, etc. But more healthily, just divest and rotate the portfolio. So with all due cautious here, I am pretty optimistic around the region because of the homework that was done by the different governments. So Luis Fernando if you want to know, complete my answer here, please do so.

[Luis Fernando Lopes, Partner and Chief Economist]

Of course, I Alex. Hi, Craig, Luis Fernando here. Just a couple of ideas that are not very intuitive, but they're important to understand the investment environment. So the business cycle in Latin America with the exception of Mexico, is not highly correlated to U.S. or Europe, it's a business cycle on its own, so correlations are pretty low. So what you're seeing here as I'd like to explain is that, the region start to get rid of the COVID thing faster than people expected outside Latin America, because the vaccination program is a very remarkable success and people want to get the vaccine down in Latin America. So the economies start to reopen fast, and that's allowed the central banks to start moving and not become about coming behind the curve. So the central makes start to tighten monetary policy in Latin America back in March, last year, March, nearly a year ago. Now we have some countries with double-digit rates like Brazil, other countries are raised interest rates 150 [Indiscernible] per meeting of the monetary policy committee [Indiscernible] are very solid.

That's the flip side of having higher commodity price and the global inflation plays also in favor of Latin America because Latin America export most of the oil and some grains and minerals, etc. that are putting pressure on inflation. And then last but not the least, we have this environment in which the currencies are appreciating right now. They were remarkably undervalued. That's a point that we made several times. Now they are not getting fairly valued or overvalued. It's becoming less depreciated than they were one, two years ago. So very benign environment, but then, of course, you have to benefit or to explore this. When the cycle didn't look that good and people are still a little bit scarier, I'm talking about Latin America, that's what we did pretty much over the past couple of years. Now, maybe we are getting different environment in which we may considering some realization because obviously, asset price are going up. Why not speed up the fund raising?

[Craig Siegenthaler, Bank of America]

All right guys, that was very comprehensive. I have one follow-up on M&A, just after the Moneda acquisition and the growth capital partnership. But how would you rank or list the product gaps, and also underpenetrated geographies that you're most attracted to. I heard your earlier comments in Q&A and it sounds like real estate's probably at the top of the list. And then in terms of geographies, Brazil, Mexico, and Colombia on the geography side.

[Alex Saigh, Chief Executive Officer]

Yes, Craig. This is Alex again. I think you're right. Yes, I think if you look at our breakdown of our AUM, I think we need to -- it would be good. We don't need to, but it would be good to beef up real estate, diversifying our product offering. And I think it's a good moment actually to come in as the asset prices and other prices for general partners in this field have actually gone down because interest rates have gone up. So we shied from actually looking at these assets, these general partners that actually manage real estate funds last year because of the year before as interest rates were lower and so, these assets would be more expensive as interest rates rise. I think we benefit from actually then looking into this asset class more closely. In addition, is an asset class that would be very good for us to add more AUM to our portfolio. Mexico is a place that we're not there yet. So and I think it's a fine economy in a macro sense. I think the, everything that is going on and then no gel political side, I think it favors on shoring to Mexico serving the U.S. as you guys know this theme very well.

I've been in Mexico a couple of times last year and now, if you do, as most of you probably did, whatever fly to the north of Mexico, prices in real estate there are just going crazy because of no warehouses been built and the lack of electricity to actually supply the power for all these factories that are now serving the U.S. and more and more so, again, with these geopolitical issues going on around the world, it favors Mexico. It's a different driver as Luis Fernando just explained, Mexico is driven by difference forces, it's the Mexican economy, I mean, which is good for our -- enough for us in diversifying the portfolio. So real estate, yes, Mexico, yes. Also, I think in Colombia, we're doing so well in private equity and infrastructure and I think we're known already there in the market as the number 1 alternative asset manager. So you'd be -- it would be also good to expand geographically there. So that's where we are looking into and that's what is the mission here of our M&A team. So hopefully, I answered your question.

[Craig Siegenthaler, Bank of America]

Great. Thank you, Alex.

[Alex Saigh, Chief Executive Officer]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Tito Labarta from Goldman Sachs. Your line is now open.

[Tito Labarta, Goldman Sachs]

Hi, good morning. Alex, Marco and Josh. Thank you for the call and taking my questions. A couple of questions. First on your FRE margin, good performance in the quarter. You're still guiding for low 50% FRE margin. Just help us think about that, because you are above 60% last quarter also, around at 60% level. So what's going to pressure the margin this year is that just more investments, and is there any seasonality to that? Do you expect the margin next in the second half of next year to be higher than the first half? Similar to what we saw in 2021? That's my first question. Then I'm going to ask a second question after that.

[JMarco D’Ippolito]

Hi Tito. This is Marco. So margins, there's no really relevant pressure in margin. What happens and how -- the way we tie our guidance is when we add up Moneda for the last year, you get only one month of Moneda. And Moneda does have a smaller margin. So when you blend it up, we're going to land it in the lows 50s, but actually we've seen the business stilling up. We are not providing any relevant guidance in terms of blended margin increase. But pressure of costs has not been a significant point of concern for us.

[Josh Wood, Head of Shareholder Relations]

And [Indiscernible] Josh, just one thing I would add there to your point on seasonality. One thing to consider there we mentioned this in the remarks is that generally the incentive fees for Moneda will crystallize in the fourth quarter and those incentive fees are part of fee-related earnings because they are measured and realized on a regular basis without the need for the actual investment exits or realizations. And so what that can cause as a pop in the margin in the fourth quarter, that would be the big element of seasonality to think about.

[JMarco D’Ippolito]

And just to add one more point, if you look at our financials and you compare the admin expenses, the progression over time has about being significant and even the personal expenses when adjusted for the compensation from 2020, there's also not a significant increase in expenses.

[Tito Labarta, Goldman Sachs]

Great. Thanks for that. So just one question to clarify on the Moneda. I know you'd mention that incentive fee. And if we back out trying to get in the management fees, I'm estimating around 8, 9 million from Moneda. I guess that was in one month if he had about 2 million in total expenses coming from Moneda in the quarter or [Indiscernible], how much were the management piece from Moneda in 4Q?

[JMarco D’Ippolito]

What you get is about total net revenues for Moneda in December 9.1, and that translates into a 6.5 of FRE and you get a little -- around 50% of this amount being management fees and 50% incentive fees.

[Tito Labarta, Goldman Sachs]

Okay. That's clear. And then that's how we should think about the margin for Moneda. And yeah, you'll get, as Josh mentioned, that pop in 4Q next year.

[JMarco D’Ippolito]

We indicated a guidance of margin. Our previous call for Moneda, we actually laid down a page where Moneda was at around 40%. So there is a slight increment of scale, but you can generally think of 40% plus some scale.

[Tito Labarta, Goldman Sachs]

Okay. That's great. Thank you. That's helpful. And then the other second question is on the performance fees revenue and we saw a good increase in the performance accrual fee. How do you think about the environment from potentially realizing some of those fees in 2022?

[Alex Saigh, Chief Executive Officer]

Well, I think here -- this is Alex here. My view is that the scenario, the macro scenario is getting more benign or better for us to realize investments. I think if we go back a year from now, there were several question mark from the region. Now, will the region be able to be fiscally responsible? Will the region can suffer from inflation? Will the central banks be responsive to inflation? Will the region be able to comply with the vaccination programs and/or accelerate them? If the answers for all of these were yeses and at least Fernando, our head economist said couple of minutes ago. So I think we've come out of 2021, the region as a whole I'm generalizing better than expectations. Even though you saw that the data was going into the right direction on what I said, it was very negative headline news and there was, of course, some political uncertainty on the Chilean side because of the election there, and our [Indiscernible] the Brazilian President doesn't help much because of his relation with the media is not very good. So on that side, so we had very no negative headline news, but the data is -- says by itself and I think media started actually turning their heads to a more positive view on the economies. And then the numbers came out earlier this year. Some of the numbers I've mentioned were very, very positive. So you go into 2022 with a better background, economic background, monetary background. And on the currency side, because of the high interest rates, it's more expensive to bet against these currencies now, about 7 something percentage. Chile trades are heading to that direction.

Over 10% in Brazil heading to that direction. Well, so betting against these currencies is of course more expensive than it was two years ago when the interest rates were close to zero. But that also helps stabilize the currency and even appreciate the currencies as you saw recently. So all of this together, I think it makes us positive on the -- on a divestment side. It is hard for us to pinpoint a month or a date, so we're doing everything that we can, of course, to walk through that route. I think we mentioned that on the Private Equity side is Private Equity Fund V now that we are targeting to divest the assets there as we did fully divest our Private Equity Fund III and we did generate performance in 2021 of $58 million for the general partner. But -- now, again, I think we are cautiously optimistic on that front, if I can say that. And I think as we move into the year again, it's very hard to pinpoint a quarter or a date, you might slip to 2023, whatever, but I think we are in the right direction and the forces are in the right direction. And the view of our -- my view at least on the economies and a major economies of the region, is more positive than a year ago.

[JMarco D’Ippolito]

And just adding [Indiscernible] and time with the financials. What you're going to see as well, as quarter-by -- as we progress over the quarter, is that the fleet of the net unrealized, the net accrued performance fees. Becoming better know, while we had a higher concentration on Private Equity Fund V, we now see Infrastructure fund III and Private Equity Fund V I adding up with a bigger chunk of the composition of this net accrued performance fee, which ultimately qualifies as a better -- increases our chances of realizing the performance fee as we have not only the number of companies within each of the fence, but also different fence. It will progress over time. So we continue to believe that Private Equity Fund V will be the next contributor or performance fee, and within Private Equity V, there is -- I always like to refer to that there is a variety of possibilities and combinations that would generate that performance fee, but it's a good and positive news that the other funds are also adding up to this net accrued performance fee.

[Tito Labarta, Goldman Sachs]

Okay. Great. Thank you very much.

[Alex Saigh, Chief Executive Officer]

I think here also, I think if we look at the also the Moneda's incentive fees here, that's also a big contributor for us in 2022. And again, I think if you look at where the region is, and of course on the Moneda side, on the currency side is also important for the [Indiscernible] equity strategies and some local debt strategies. So you needed, as you know, 880 Pesos to buy a dollar, today you need 800. Now you needed [Indiscernible] 60 to buy a dollar today you need 520, so that actually know pushes also the performance fees of these local funds in the right direction as well.

[Operator]

Thank you. Our next question comes from the line of Marcelo Telles from Credit Suisse. Your line is now open.

[Marcelo Telles, Credit Suisse]

Hi, good morning, everyone, and congratulations on the results. Hi, Alex, hi, Marco. I have two questions. The first one, with regards to your capital deployment, clearly 2021 was a very good year for you with more than $2.5 billion in deployments So how should we think about your capacity to deploy into 2022? Do you think it can keep more or less at the same pace? And my second question is more of a -- it's a top-down question. Of course, you have elections in Brazil this year. The candidate that is leading the polls, I think clearly has a more of agenda of higher participation of the government in the -- in potential and infrastructure and in investments. And how -- and most likely, you could expect a bigger role off the BNDS, Brazilian National Development Bank down the road. How do you think an increased role of the BNDS can impact your business, either your ability to deploy or your ability to find new assets in Brazil? Thank you.

[Alex Saigh, Chief Executive Officer]

On the deployment front. And again, thank you for your question. This is Marcelo, this is Alex here, and I hope you are well and safe as well. On your deployment question here, we still have a lot of room, what -- which I call now, we renamed it. Capsule that is to be called, which will then know January fees as shown by Marco here in this presentation. So we have room to continue investing now for Private Equity Fund VI or Infrastructure Fund IV. Our other strategies in real estate and credit, and of course, in public equities there. In addition to that, as far as revenues goals for 2022, we did deploy a substantial amount of capital for our standards in the second half of '21, which will only generate revenues in 2022.

So these two movements, with this last one that I'm going to describe, as we do fund raise, we will then continue investing not only in the prior funds, but we will begin investing the new funds. As mentioned, we are currently raising our next flagship private equity fund. And we can invest while we fund raise. So if we raise a $100 and I aim to raise $200 for this fund, I can start investing this $100 that I already raised. So as mentioned, we expect to have a first closing of Private Equity Fund VII for example, in this quarter. For my example, a $100, I can start investing that $100. I don't have to wait to raise the whole fund, the $200 in my example, to start investing. So I can only sell -- not only, will my revenues in that 2020. 2022 first half be impacted positively by the investments that we did in the second half of '21, number 1. Number 2, we have still a lot of dry powder, as you know, to invest. And that then pushes revenues in deployment in the first half of '22, pushes revenues up in the second half of '22 in addition.

And thirdly, as we raise new funds, which we mentioned that we are in the process of doing, I can start actually investing this fund, I don't have to finish fundraising to starting investing the fund. And so all of these three forces pushed towards the right direction here and that's why we mentioned that we see or no guideline is that's fee related earnings will grow by 50% versus 2021. On your -- and then I will ask Mark or Josh to add anything into my answer here. But on the political side, we already lived through mandates of Mr. Lula. As you know, and forget about the value side and whatever. No, I think it’s a war on values year and the current president Mr. [Indiscernible] and Mr. Lula, as you mentioned, which is the presidential candidates, I think they differ a lot of the values and etc., but the stars, the major drivers of their economic programs think they are very similar. I think Mr. Lula says a lot of things to gain popularity at this moment of the campaigns. So here's shouting to his own crowd and he needs to do that. I think strategically right now to be able to call in his supporters to come about and see his here's percentage in the polls go up, as he did when he ran for presidential elections in the past. We already saw Mr. Lula running for five presidential election. More or less you know the strategy. And then as things approach to the second round or even earlier than that, and he's already showing that actually at this moment, he drives himself to the center and are trying to attract more of the moderates in the business crowd as he is by selecting Mr. Alckmin as his Vice President.

Now, that's a clear sign as he did with [Indiscernible] As you remember well, his Vice President when he was the President, a President in his first term. In the end, I think even though on the value side, we can -- you know each one has their own opinions and [Indiscernible] allowed and Mr. [Indiscernible] differ tremendously, I think on the economic side, I think it's more or less it's similar. It's not the same, but it's very similar more or less the same economic programs at both of them will pursue. Maybe different what [Indiscernible] is saying, but I'm more looking on what [Indiscernible] actually did, when he was the president. On the BNDS front, I don't think you will have any more leeway to do what he did with BNDS than funding the champions of Brazil. As you know, these champions actually got about in messy corruption scandals, some of these champions. So I think it's going to be very hard for Mr. Lula to come around with the same strategy, I'm going to finance these champions again using the BNDES. I think there's going to be a lot of pressure from society, from the legal system, from Congress, not to allow him to go through that loops. And I think Mr. Lula is everything but not intelligent.

He's very intelligent and smart and politically smart to know that. So I think he saw that he can use the capital markets to finance deals and finance, as it happened, during the last years while he was not a president. Now we have record privatizations, record concessions, and the private sector coming in and doing a great work and actually buying all these assets. We saw the minister, Minister Bolsonaro Infrastructure Minister doing a great job, Mr. Tarcisio reflected on that one. So I think in my view, you might see that there's a different route than going through that route that he did try to go through and financing champions and actually getting into big trouble on the corruption side. But that's my view, I think. But again, forgetting about the value, so I think on the economic front, they're both similar. And as you probably know, Marcelo, I think the financial markets is already now going through that thought process that I just explained and say, well. I know that one is going to continue to be more of the same and the economic side is okay. The other one, I think, with Mr. [Indiscernible] and everything that he's saying to the business crowd, it's going to be okay as well. And I think that's why the markets are a little calmer as like in the recent weeks. I don't know if Marco, if you want to compliment [Indiscernible], please do so.

[JMarco D’Ippolito]

Yeah. I will just compliment on the financial side to help you Marcelo when you're building up your model. I think the best way to think about capital deployment, on the drawdown funds. If you add the main funds to be raised, you're going to get somewhere around $6 billion, and you just split that number in between 3 to 4 year of deployment, and adding up close to the pending fee earnings that you earn, you get to a number that is somewhere around $2 billion. And I think the $2.5 for '21 is a little bit of an exception because it has been an extraordinary year of capital deployment. We could do that again because. We gave you a little bit of elements and the timing and opportunity for the region. I will just simplistically on your model, lay down and splitting evenly over the three to four next years for the drawdown funds.

[Marcelo Telles, Credit Suisse]

Axon [Indiscernible]

[Luis Fernando Lopes, Partner and Chief Economist]

Sorry Marcelo, just to compliment [Indiscernible], macroeconomic [Indiscernible], [Indiscernible] question about us being concerned with the crowding out by the BNDS. I need to reemphasize Alex points. So corporate governance in Brazil, especially for state-owned and companies changes, the government cannot do what he did during the 2000 Petrobras BNDS Eletrobras, etc. So there's a first thing, but even if it could, our business model does not depend on what the BNDS does or doesn't. So we did money, we create the new areas we did investment, it's very different kind of government. So we had central government or leftist government, right -- harder, right government. So there are plenty of opportunities for us to explore in Brazil or outside Brazil, so think that the model of being just crowding out to private sector is going to work because there are now many more institutional restrictions. But independent of that, there is no lack of opportunities. The problem we don't have in the region, specially Brazil, lack of opportunity to invest. So if the government becomes more active or little bit more active in one area, there are several other industry that we can target and explore. So not really a major concern for us.

[Marcelo Telles, Credit Suisse]

Very good. Thank you so much for the answers. Appreciate it.

[Operator]

Thank You. Our next question comes from the line of Riccardo Buchpiguel from BTG Pactual. Your line is now open.

[Ricardo Buchpiguel]

Morning everyone and congrats on the results. Good you please help us understand a little bit your January expectations on a couple of details from the new PE Fund VII. I know a lot has been said about that, but if you can comment, I want to understand and get a sense on what is the fund raising schedule after the first closing, in the next quarter than you mentioned. And how much AUM is expected for the new fund, after it's fully raised. Thank you.

[Alex Saigh, Chief Executive Officer]

Thank you again. And this is Alex here. Fundraising for these kind of closed-end funds, they normally take 12 to 18 months. That's the natural, the historical average, not only for Patria funds, but in general, in the industry. What has -- we've been seeing a lot of interest, but we're also seeing that COVID and due diligence and meetings as we did mention in our last call, did interfere a little bit in the pace. Because investors are -- some of them are -- they want to come down to Brazil and to visit some of the companies and then they had to of course change their minds and redo their processes because some of their processes did include local visits. And of course, not only us, but they have to redo their process for all the funds around the globe and they couldn't travel. So that was a -- now, there were some adaptation last year to the new reality, which is the COVID reality, where traveling is more restricted. But I think we overcame that, and that's what we mentioned in our last call, and things started heading away to the right direction and we expect of mentioned first close in this first quarter. So I can mention what happened in the past and it's hard to predict the future.

So looking at the past, all of the KPI's that we have, have conversion rates, right? Which is knowing that you generate needs and then convert them to indication of interest. And then you convert them to what we call in the industry here, soft circle, which are very more clear indication of industry, [Indiscernible], all the way to signing a subscription document, right? And we do have a process, we follow the process. We have gates to manage this process that I just described, the one I'm describing here, very superficially. And the indicators of these, our gates, are very much in line with the KPIs and the indicator that we had in prior funds. So nothing that -- we are fine there. I think we had Rob ask a question on re-ups and the new investors. Now again, for what we're seeing from the KPIs of this fund raising and from conversion rates up to now, etc., more or less the same as previous funds where 70% to 80% will come from re-ups, 20% to 30% from new investors. We're not seeing anything really different from prior funds. If that's -- if I might be able to answer your question and how do we know that because following these KPIs that I mentioned. So hopefully I answered your question.

[JMarco D’Ippolito]

And just to help you out with your model, fundraising is a metric that we report and we will continue to report every quarter. What I would encourage you, as we move forward over the year during the reporting for the first quarter, we will clearly present where we stand with that not only showing that on the roll-forward AUM but also giving a little bit more color in how we are progressing.

[Ricardo Buchpiguel]

Very clear. Finished. Thank you.

[Operator]

Thank you. Our next question comes from the line of Guilherme Grespan from JPMorgan. Your line is now open.

[Guilherme Grespan, JPMorgan]

Hi, Alex, Marco, Josh. Thank you for the call. Just two quick questions for you from my side. The first one, it's more of a technical question. We had $2 million expenses in line that you guys called default consideration. I just want to make sure we got correctly that this is retention bonus for Moneda's actives and if we're going to see this $2 million repeated going forward every quarter. And then the second question is related to incentive fees from Patria itself. We have been seeing a very good 2019, 2020, a little bit more modest, but we still saw collection. Of course, last year was a little bit more challenging, but just want to touch base on the outlook for this year. We have been seeing markets rebounding, FX doing well. Just want to get an idea if those ones have high watermark, how close you guys are to this performance collection, and the outlook for this year for this line. Thank you.

[JMarco D’Ippolito]

For the first one on your statement is correct. So this is deferred compensation for Moneda. What you're going to see over time because as we indicated in the third quarter on the reports and acquisition of Moneda, third and second quarter, we indicated that there is a deferred compensation of $59 million. And the way this flows through into our financials is every month, you're going to see this amount being accrued through our balance sheet. And that's the amount that you know, so too is the pace, if you will, of increase that you see basically every month for the upcoming period of time. On the second one, and I can speak a little bit about some of the technical perspective, Alex will jump in and talk a little bit about the performance, what you're going to see is the incentive fee that has been accrued for our full-year. It's coming mostly from Moneda. It's coming from -- it's high yield funds that has outperformed the market very well. The equities fund, both in Patria and Moneda has not contributed with incentive fees significantly through this year. And as you can tie to the performance of the equity market in the region, we, of course, have a positive view. And as we can see from the beginning for this year, that has already been a significant bounce back. Hard to tell where we're going to land over the year, the prospects for equities for this year are better than last year. Most of our funds respect the high watermark, so there's a big way to go before we start kicking in with incentive fees, but directionally, that's the explanation that I would think of.

[Alex Saigh, Chief Executive Officer]

And just complementing here, Marco, I think. Most of our credit that funds on our listed equity funds, we charge incentive fees against the benchmark. So even though -- if our fund did not perform as we expected, for example, let's say that our fund was down 2% for the year but the benchmark, relatively benchmark be it a Chilean benchmark, a Brazilian's benchmark was minus 8 and our fund again, in my example, was minus two. We performed better than a benchmark and we still collect for incentive fees. So that's also an interesting dynamic of our listed equity funds, most of our listed equity funds, and most of our credit funds. That's what I wanted to add here. Thank you.

[Operator]

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to CEO Alex Saigh for closing remarks.

[Alex Saigh, Chief Executive Officer]

Well, thank you, Operator, and thank you all for participating. It's been a real pleasure to be the CEO of this company in 2021. Now, thank you as for your support. Thank you, all shareholders, for your support and thanks the team and our limited partners for also the support and the stamina and their competence for delivering such great results. Very proud of Patria, the team. I'm very proud of our '21 results. Now heading to '22, again, guidance of 50% growth in fee-related earnings. And we had a good January and steaming ahead to deliver the results again. Very excited to be here. Thanks for your support. Be well, be safe. Hope to see you guys in-person, and that means that we are over with this COVID craziness. And again, be well, be safe, hope to see guys soon, and thank you very much.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.