Patria Investments Ltd

NASDAQ:PAX

Earnings Call Analysis

Earnings Soar; Positive Outlook for 2024-2025

The company's net accrued performance fees surged by 15%, reaching $541 million, bolstering the performance fee inventory to over $3.6 per share. This contributed to distributor earnings of $187.8 million in 2023, marking a nearly 30% increase from the previous year. Despite the introduction of a new equity-based compensation plan and other M&A-related costs, the company has intentions to distribute 85% of its stable fee-related earnings. Looking ahead to 2024 and 2025, projections are set at a minimum of $170 million and over $200 million in fee-related earnings, respectively.

Patria's Third Year as a Public Company: Strong Earnings and Dividend Yield

In its third year of public trading, Patria has reported gratifying Q4 '23 results with $47 million in fee-related earnings, contributing to a full-year figure of $148 million. This represents a 14% rise from the previous year, predominantly driven by organic growth. The performance-related earnings followed suit with a Q4 '23 earning of $27 million, rounding up the year at $47 million. Noteworthy for investors is the distributable earnings totaling $188 million for 2023, corresponding to $1.26 per share. This signifies a 26% EPS growth from the previous year, with dividends yielding an attractive 7.7% based on the share price at 2023's start.

Strategic Growth Targets and AUM Expansion

Looking ahead to 2025, Patria has set its sights on growing fee-related earnings from $130 million in 2022 to over $200 million, aiming for an annualized growth rate of 15% or more. The firm is on track with this target, thanks to robust organic growth, pending M&A transactions, and $47 million of performance-related earnings contributed in 2023. In alignment with these financial goals, Patria also targets an increase in total assets under management (AUM) to $50 billion, with fee-earning AUM hitting $35 billion by 2025. Recent successful fundraising and M&A deals are projected to propel Patria to meet its AUM targets a year ahead of schedule, fostering growth with the addition of stable and sticky funds.

Impressive Fundraising and Performance Results Across Verticals

Patria's narrative for the last year has been one of diversity and strength across its verticals. Organic AUM grew by $4.8 billion in 2023, a showcasing of the platform's formidable fundraising capabilities. The infrastructure sector rose by over $1 billion alone. Credit, real estate, and public equities also had stellar contributions, each adding $700 million to $800 million. The firm's solid returns were highlighted by more than $1.9 billion in full-year 2023 appreciation, spurred by successful investments in high-performing companies like Lavoro, SmartFit, and Ultrapar. These strategic moves upscaled the net accrued performance fees by more than 15%, indicating a robust inventory of performance fees and signifying ongoing confidence in the firm's growth trajectory.

Looking Forward: New Initiatives and Sustained Growth

Finally, Patria acknowledges the importance of staying agile amidst a dynamic investment landscape. The firm is keen on developing its platform by exploring new avenues of growth while reinforcing its commitment to existing strengths. This approach signifies an orientation towards maximizing potential opportunities and fostering long-term expansion.

Financial Outlook for 2024 and Anticipation for 2025 Targets

As Patria prepares for significant acquisitions to be finalized in 2024, the groundwork is being laid for reaching and potentially surpassing the 2025 earnings goals. The completed acquisitions are set to fully contribute to earnings, and Patria is on course to realize at least $170 million in fee-related earnings in 2024, marching steadily towards the $200 million target for 2025. The company's meticulous growth strategy is evident in consistently generated performance earnings, such as the $26.6 million in Q4 '23, which supports the $541 million in net accrued performance fees. This strategic fiscal management will allow Patria to consider retaining additional funds for M&A activities, ensuring a balanced capital structure while still upholding a commitment to distributing substantial shareholder dividends.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and thank you for standing by. Welcome to Patria's Fourth Quarter 2023 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. [Operation's Instructions] I would now like to hand the conference over to your host, Josh Wood, Head of Shareholder Relations. Sir, you may begin.

[Josh Wood, executive]

Thank you. Good morning, everyone, and welcome to Patria's Fourth Quarter 2023 Earnings Call. Speaking on the call are our Chief Executive Officer, Alex Saigh, our Chief Financial Officer; Anna Russo; and our Chief Corporate Development Officer, Marco D’Ippolito. And we're also joined by our Chief Economist, Luis Fernando Lopez, 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 our Investor Relations website 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 20-F annual report. Also note that no statements made on this call, constitution 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 IFRS measures are included in our earnings presentation. On headline metrics for the quarter, Patria generated distributable earnings of $70.5 million or $0.47 per share for 2023. We declared a quarterly dividend of $0.399 per share, equating to 85% of distributable earnings per share and payable on March 8 to shareholders of record as of February 22. With that, I'll now turn the call over to Alex.

[Alexandre Teixeira de Assumpção Saigh, executive]

Thank you, Josh, and good morning, everyone. 2023 marked Patria's third year as a public company, and I'm very pleased with the performance we delivered in the fourth quarter and the full year. We generated $47 million of fee-related earnings in Q4 '23, bringing our full year 2023 FRE to $148 million, with an FRE margin of 60%. This is up 14% from 2022, driven mostly by organic growth. Performance-related earnings for Q4 2023 were $27 million, driven mostly by Infrastructure Fund III, and we finished the full year 2023 with $47 million of PRE. With strong performance in both earnings streams, we delivered more than $70 million of distributable earnings or $0.47 per share for 4Q '23, bringing distributable earnings for the full year 2023 to $188 million or $1.26 per share. That translates to EPS growth of 26% year-over-year for our shareholders and the resulting $1.07 in dividends equates to a yield of 7.7% based on our share price at the beginning of 2023. This was also our first year on the path to deliver the multiyear targets shared at our 2022 Investor Day, which look out through 2025. We aim to grow fee-related earnings from $130 million in 2022 to more than $200 million in 2025 and equating to an annualized growth rate of approximately 15% or more. Given our performance in 2023, our organic growth initiatives and the additional earnings power embedded in our pending M&A transactions, I'm confident in our path to meet these targets. While it's challenging to guide you on PRE in a given quarter or year, we said we could generate $180 million of performance fee realizations between our Investor Day and the end of 2025. Including the amount realized in the fourth quarter of 2022, we have now delivered more than $66 million of PRE since the Investor Day, putting us right on pace to deliver this target as well. In terms of growing the platform, we also set targets for total AUM to reach $50 billion and fee-earning AUM to reach $35 billion by the end of 2025. And to achieve that, we estimated a need for at least $20 billion of capital formation from a combination of organic fundraising and M&A between 2022 and 2025. Starting from a base of $24 billion of total AUM and $18 billion of fee earning AUM in the beginning of 2022. Over the last 2 years, we have had organic inflows of nearly $8 billion and added nearly $3 billion of additional inflows from acquisitions that have already closed to our fee earning AUM base. As you know, we have also recently signed 2 significant M&A transactions, which we expect to close during 2024. And based on existing AUM levels, we expect these transactions to add more than $10 billion of additional fee earning AUM to the platform. When you put that all together, combined with our goal to raise around $5 billion of gross organic inflows again this year, we believe that by the end of 2024, by the end of this year, we should have already achieved the $20 billion of capital formation and $35 billion of fee earning AUM a year earlier than expected. We are not only growing. We are growing with quality by adding stable and sticky AUM. Our permanent capital AUM is expected to grow to near 20% of total fee earning AUM with the closing of pending M&A. With over 70% of fee earning AUM continuing to be denominated in hard currency. Seen in this progress and the meaningful evolution of our platform, we expect to host another Investor Day event late this year to share our vision for the next phase of growth. Now looking at some highlights and updates across the platform for the quarter and the year. Organic inflows to total AUM were $1.4 billion in Q4 and $4.8 billion for the year, counting additional $175 million of commitments that were approved in December and closed in January. Our fundraising for the year really showcases the power of diversity and reinforces why it's such an important aspect of Patria's growth. Our latest flagship infrastructure vintage raised more than $1 billion in 2023, with more than $400 million in the fourth quarter. Our credit, real estate, public equities and advisory verticals each contributed $700 million to $800 million of gross inflows with some notable highlights. We secured more than $200 million in 4Q '23 for our infrastructure private credit fund. Our PAN, Latam large-cap and small-cap public exit strategies raised combined gross inflows of more than $740 million. The VBI real estate platform had a fantastic year with broad inflows across the product offering totaling more than $750 million. And while the industry has seen a major slowdown in private active fundraising, we are quite optimistic that our flagship private active funds extension through the end of 2024, will allow us to significantly add to the capital we have already raised to reach over $2 billion. For us to sustain strong inflows, we have to always continue to perform to our clients, and I'm very pleased with the strong returns our strategies are delivering. We saw particularly strong performance in the fourth quarter with more than $1.1 billion in positive valuation impact driving full year 2023 appreciation to more than $1.9 billion. Leading the charge here was strong performance in some of our larger publicly traded positions in the private active platform like Lavoro, our agriculture inputs distributor, SmartFit, our low-cost gem chain and Ultrapar, our gas station network company. This drawdown for depreciation has driven our net accrued performance fees to $541 million up more than 15% from the prior quarter and 13% from 1 year ago, even after the realization of $47 million of PRE in 2023. The strategies in our public exits vertical also generated strong gains with PAN, Latam strategies yielding nearly 29% in U.S. dollars and Chilean equity strategies yielding more than 18% in local currency for the full year. The performance of our credit strategies was also notable with our Latam high-yield fund, which is dollar-denominated, yielding 14% in 2023, while the local currency fund yielded nearly 30% in U.S. dollars for the year. We have continued to stress that returning capital to our investors has also been a key focus in 2023 and our divestment activity in the drawdown funds continue to gain momentum. We closed sales transactions for all data, our data center business and Entrevias, one of our toll roads in Brazil in our Infrastructure Fund III, which delivered more than $1.5 billion of proceeds to investments and push this fund through the performance fee realization hurdle to generate much of our PRE in 2023. We also announced the sale of Delly's, our food distribution platform as well as block sales in publicly traded positions which secured more than $600 million of additional proceeds. In total, we realized more than $2.5 billion across the platform for our limited partners during 2023. Finally, I want to take a moment to highlight some new initiatives that are moving forward here in early 2024. We have been very active on the M&A front in 2023, but I want to also give equal attention to some of the great things we are doing organically to grow our platform. First, we are nearing the formal launch of our first infrastructure private credit fund, which is something we have been diligently working towards over the course of 2023. We believe this is a major opportunity to grow our private credit offering while leveraging our extensive experience and deal flow access in the infrastructure space. This fund will have a very long-dated 50-year term structure, making it effectively permanent capital for our platform. As noted earlier, we formally secured more than $200 million in initial commitments for this fund in Q4, anchored by multilateral agencies and now have commitments taking us up to $350 million. We see good momentum for this fund to become a meaningful contributor to fees in the next few years. Second, we are also announcing the start of a new platform within our infrastructure practice. Patria has a long and successful track record in the energy sector being one of the largest investors in solar, wind, small hydro, natural gas and transmission assets. Overall, Patria has historically committed $2.3 billion in the sector over the past 18 years, representing more than $5 billion of overall CapEx. In connection with the remarkable growth of the energy free market in Brazil, we are excited to announce the launch of our energy trading platform, which will build on Patria's historical expertise in this area. As energy supply volume continues our migration from the regulated market, the Brazilian free market is expected to grow from just over BRL 30 billion, approximately $6 billion in 2023 to around BRL 70 billion, approximately $12 billion by 2028. Within this backdrop, we believe there's a compelling opportunity in a very fragmented independent trading space. This initiative will be developed in first Q '24 in partnership with a talented team with an outstanding track record alongside Patria's team. It will be funded with an initial contribution of BRL 100 million, approximately $20 million from Patria's balance sheet with up to BRL 50 million, approximately $10 million of value at risk. We expect this new strategy to be a positive contributor to Patria's earnings with limited impact in the first few years, but with attractive margins and exciting growth potential over time. After establishing a track record of success, we believe it would also progress into an asset management strategy with third-party capital and a relevant contributor in our infrastructure vertical. We expect to provide more details in coming quarters as these initiatives take shape. To finish here, I'm very pleased with Patria's performance in 2023 and our growth path, and I'm very proud of what we have accomplished in the 3 short years since our IPO. Our platform has significantly expanded beyond 2 successful flagship strategies, private equity and infrastructure to provide a diversified client offering across major asset classes, adding scale and expertise in credit, real estate and public equities. This expansion turned a limited offering of less than 10 products into a versatile menu of more than 30 products to serve a range of client profiles and needs. We extended our geographic presence in the region in both investment expertise and distribution capability through new partnerships in Chile and Colombia. Through this expansion and diversification, our fee earning AUM has grown from approximately $8 billion at our IPO to a pro forma of more than $34 billion today, including pending M&A. In turn, we have grown our fee-related earnings from less than $60 million in 2020 to nearly $150 million in 2023, with more growth embedded as we progress towards our 2025 target of over $200 million. And importantly, through this growth, I believe we have maintained the high standards of investment performance that is valued and demanded by our clients, and this always remains the key to our growth over the long term. Let me now turn to Marco for an update on corporate developments and then Ana to walk through the numbers, and I'll be back for some final thoughts. Marco, over to you.

[Marco DIppolito, executive]

Thank you, Alex, and good morning, everyone. It was indeed a very active year for Patria on M&A strong. And since the IPO, we have now signed or closed on 6 acquisition transactions as part of our strategy to expand the platform and grow our earnings capacity. Industry consolidation seems to be the newest hot topic in the sector. So this is certainly nothing new to Patria, as we've made inorganic growth as a key part of our strategy over the last 3 years. Through Moneda, we acquired scaled credit and public equities platforms, along with the key leadership talent as well as geographic expertise and distribution relationships in Chile. We also added that and versatility on the private equity vertical through the acquisition of teams focused on growth equity with Kamaroopin and venture capital with the case of Igah. In real estate, we acquired 50% of VBI real estate with an option to acquire the remaining stake to anchor our presence in Brazil. And recently, in the fourth quarter 2023, we were able to act on a very attractive opportunity to acquire Credit Suisse Real Estate. Also recently, in the fourth quarter, we signed the agreement to acquire the private equity solutions business from Abrdn. Once closed, this transaction will launch a new vertical for Patria called Global Private Market Solutions, which adds fast-growing secondaries and co-investment strategies and will enhance our ability to offer diversified global alternatives exposure to our clients. In addition to the acquisitions in the Colombian market, we have joined forces with in a venture that will anchor our real estate presence in the country and also tap into a massive distribution network to provide a range of locally focused alternative products to Colombian investors. As substantial as our M&A activity has been, it's worth noting that transactions closed in 2023 contributed effectively only $2 million in FRE in the year. Likewise, the major M&A transactions signed in 2023, will also have only partial year impact in 2024, depending on closing timing. We continue to feel good about the process with the private equity solutions business we are acquiring from Abrdn on track to close in the first half of the year. We also feel comfortable with the process on Credit Suisse real estate, which is slightly more complex as we will go through a fund level shareholder approval process in each REIT vehicle following standard regulatory approvals. All in all, we expect to begin 2025 at this acquisitions fully on board and fully contributing to reaching our earnings targets. With 2 sizable pending transactions, 2024 will be an important year of consolidation and integration as we close the deals. However, we do remain active and will continue to have an opportunistic mindset to achieve our platform growth ambitions through M&A. I will now turn the floor to Anna to go through the results in more details.

[Ana Russo, executive]

Thank you, Marco. Patria delivered a strong quarter and a solid year, with significant growth of our main KPIs, and we remain a consistent path to reach our 2025 targets. Our fourth quarter 23 distributor earnings of $7.5 million were up 32% from Q4 2022. And adding to our year-to-date results will reach a full year 2020 of $187.8 million, up 28% compared to prior year. Our resilient management fee revenues were $64.7 million in Q4 '23, rising 18% compared to Q4 '22 and $245.6 million for the full year 2023, up 11% compared to '22. This growth was supported by our latest flagship private equity and infrastructure funds as well as the expansion of our real estate platform. Total operating expenses, including personnel and administrative expenses totaled $18.9 million in Q4 '23, down $5 million compared to Q4 '22. The decrease is driven mainly by the further implementation and expansion of our equity compensation plan at the executive bonus level already mentioned last quarter, integration synergies and outsourcing mailing partly offset by M&A expenses to other increases, inflation and appreciation of the curve. Full year 2023 total operating expenses were $91 million, almost flat versus prior year and following the same general driver of the quarterly comparison. Looking at specifically at the personnel expenses, the quarterly average during 2023 was approximately $15 million, with the last 2 quarters of the year, impacted by the catch-up accrual impact of implementing our equity compensation coke. Therefore, the 2023 quarterly average as opposed to the Q4 '23 results is a more reasonable run rate to consider as we enter 2024. Fee-related earnings were $46.7 million in the quarter, up from $35.3 million in Q4 '22. The Full year 2023 FRE reached $147.7 million with a margin of 60%, up 14% year-over-year with a 2.4 percentage point increase in margin. The M&A transaction closed in 2020 contributed effectively about $2 million of FRE in the year, which was mainly Camaren, Igar and 2 months of Bancolombia with the remainder of the growth being organic. We finalized a stronger year with 1% to 2% of our FIA guidance, and this result continues to keep us on track to deliver at least $170 million FRE in 2024 as well as our 2025 FRE target of at least $200 million. We have ultimately consistently generating performance throughout the last several quarters. During Q4 '23, we generated $26.6 million of performance-related earnings, driven by a combination of additional net proceeds for Infrastructure Fund III and contribution from one of the VBI drawdown funds. With our Investor Day, we have crystallized $66 million out of our $180 million target throughout 2025. Net accrued performance fees were up 15% from the prior quarter to reach $541 million, even after considering the performance fee realization in the fourth quarter with the additional accrual coming mostly from private equity funds, appreciation and positive currency impact. This current accrual now represents more than $3.6 per share of performance fee inventory. On taxes, our corporate income tax expense in 2023 were $3.1 million compared to 2022 with the slightly higher effective tax rate, driven by a higher mix of performance is subject to local tax rates. So again, highlighting the bottom line. This all led us to a distributor earnings of $187.8 million in 2023, which is an increase of almost 30% versus the prior year. Now a few notable comments on our GE to medical reconciliation. As we closed our transaction with Bancolombia and signed another 2 acquisitions agreements in the fourth quarter, we include more M&A-related costs, which you can also see in the transaction cost line. In regards to the equity base and long-term compensation line, Patria implemented this year of all tariff compensation bonus cost mentioned before on the FRE explanation, which give us the opportunity to executives to convert 50% of their cash bonus due to equity shares, receiving a matching component to be vested in 3 to 5 years. This was very well received by our senior level people, showing the high long-term commitment and engagement of the team. The majority of the impact of this P&L line comes from this new program and the remaining relates to previous long-term programs on Patria and acquired Compass as well as equity-based compensation of partners. And finally, an important clarification on Patria dividend payout. In the announcement of our agreement to acquire the Brazilian new state Beeson Credit Suisse back in November, we noted that Patria will give careful consideration to our optimal capital structure as we look into 2024 and beyond as we view the combination of cash, debt, equity to fund our M&A pro. Beginning in Q1 2024, we may elect to retain more than 15% of our performance-related earnings and realized gains from the energy trading platform, net of a proportional share of corporate taxes rather than distribute a full 85% as we aim to do with the rest of our distributor earnings streams. We expect to exercise this incremental retention up to an additional $100 million in order to fund M&A obligations and pay down debt, after which point, we will evaluate the appropriate distribution approach for these earnings going forward. To be very clear, we plan to continue to distribute 85% of our stable and recurrent fee-related earnings streams, maintaining our commitment to deliver an attractive payout for our shareholders. I will now turn back to Alex for closing remarks.

[Alexandre Teixeira de Assumpção Saigh, executive]

Thank you, Ana. As we turn to your questions, I will just reiterate how pleased I am with our performance in 2023 and over the last 3 years and with the tireless contributions from the entire Patria team to make it happen. From approximately $8 billion of fee earning AUM at the IPO to more than $34 billion, including our pending M&A. I think that this is a remarkable achievement. This is a people business, and we truly have a fantastic group of talented people pushing this company forward. As Ana noted, 2024 will be a transition year to our multiyear growth targets for 2025. We are comfortable in getting the fee-related earnings to at least $170 million in 2024 on the way to more than $200 million in 2025. Considering the growth embedded in our pending transactions, our organic initiatives, I am confident that we will reach both the financial and the AUM targets for 2025. We thank you for your time to listen today and now happy to take your questions.

[Operator]

Thank you. [Operation's Instructions] Our first question comes from the line of Craig Siegenthaler with Bank of America.

[Rodrigo Ferrer, analyst]

This is Rodrigo Ferrer on the line for Craig. For Private Equity Fund VII and Infrastructure V, can you walk us through the size and timing of those raises. You've already closed on about $1.2 billion for P IV and about $1 billion for IFV. Do you expect consistent fundraising throughout 2024 or a few large closes? And when should we expect the final close for each of them?

[Alexandre Teixeira de Assumpção Saigh, executive]

Hi Rodrigo, this is Alex here. Thanks for your call, and thanks for participating. Can you hear me well, right?

[Rodrigo Ferrer, analyst]

Yes.

[Alexandre Teixeira de Assumpção Saigh, executive]

Okay. Great. Well, private equity Fund VI, we are on the way to raise $2 billion to $2.5 billion. We are at today, halfway there, halfway the $2.5. We are a bit [Indiscernible] so I think the latest number is a Navy or something like that. We didn't have any closings beginning this year. We have another process open in Brazil. As you know, when we come raising Brazil, it's a very locked-in fundraising process. So we should be fundraising in the next 30, 45 days, something to do for investors were [Indiscernible]. We expect another $50 million, $100 million coming from there and then follow on raising this on $2 billion to $2.5 billion, which is the guidance that we gave late last year, we continued the same. We're also funded of Latin America we should push close to 5 in addition to fundraising. And then from there, from $1.5 billion to $2 billion, we have up from the third -- second quarter to the last quarter of the year, 3 quarters ago, which we feel confident. As also mentioned, extended the fundraising period for this fund to the end of this year. The fundraising period was going to end in the second quarter. We extended until the end of '24, as ton revenues taking more time than usual for most funds, private equity Fund VI being one of them, as already mentioned in previous calls, so we extended the LPs that are already in the fund agreed with this funds extension period. On Infrastructure Fund IV, Fund V, I'm sorry, we are over $1 billion as of beginning of January, we have some commitments that were approved in the investment committees of some LPs late last year, and they -- some of them were signed late last year. One significant commitment was signed beginning of this year, so it pushes us to over $1 billion. And more or less the same process that I described for infrastructure for Private Equity Fund VII, Infrastructure Fund 5 have significant fundraising to be done in Brazil, Chile and Colombia this year, more in the first half of the year. And then we continue fundraising with excom investors. We still feel very positive that we can reach the $2 billion to $2.5 billion number, closer to the $2.5 million, so those 2 together will be around $4.5 billion, $2 billion to $2.5 billion from Private Equity Fund VII, 2 billion to 2.5 billion to infrastructure Fund V. And again, I see a good demand for infrastructure. So with the higher probability of reaching the 2.5 there number that I mentioned. So Infrastructure Fund V as we started raising last year. We didn't ask for an extension. The extension normally on this fund is a normal fundraising period, which ends in the end of this year. If there are 1 or 2 investors are still working on our data room at the end of this year, I think it's we can ask for an extension there. I don't think it's going to be necessary, but it is possible is common for these kinds of fundraisings. Hopefully, I answered your question. I'm hoping that was it, right? Fundraising for Infrastructure V and fundraising for Private Equity Fund VII , right?

[Rodrigo Ferrer, analyst]

That was super helpful. For my follow-up, you had guided before that you expected $2 billion to $2.5 billion of realizations in I think 2024 and the beginning of 2025. Do you expect this to be concentrated towards a certain part of the calendar year? And can you remind us which funds should be accounting for most of these realizations?

[Alexandre Teixeira de Assumpção Saigh, executive]

Yes. Unfortunately, it's very hard for me to give you an exact quarter for realizations. I joke with my team that M&A should not be mergers and acquisitions, sometimes should be called Misery and Anguish rate. selling a company a quarter here, a quarter there. And on the buy side and the sell side, right? And on the sell side, specifically, which are realizations that you asked for my guidance is, we will continue -- we have a very strong and we will continue with a very strong divestment agenda. As you can see, since the IPO in early 2021, we have been delivering first was private Equity III that gave us a very important for 2021 performance fees that added to our distributor learnings and then came private equity Fund V beginning of 2022 and then came infrastructure fund III and you know the whole story. So today, as of today, infrastructure countries still have some important assets to be sold, and we are in the process of selling them. And we're beginning to sell assets of Infrastructure Fund IV. There are some great assets there. You know the strategy. I don't want to be repetitive here, redundant with you. It is a wind concession strategy, right, in the concession, we build the assets, we call it derisking and then we sell the assets once it's operational. Several assets of our Infrastructure Fund IV went operational last year. We had a solar panel farm that is now fully operational. So for us, ready to be sold. A thermal power plant already also operational as of end of last year. So all of these assets that once they are operational, we put them for sale. Also, when we manage toll roads, the first 2 to 4 years of the concession, we have big CapEx investments, and then we -- now we have more of a maintenance CapEx, year 5 onwards for the next 25 years. I'm generalizing. So there are some totals that we are in 3, 5 years into the concession that we won. So they're also ready to be sold as we did with one of the toll roads of our infrastructure fund last year. Private Equity Fund V and IV, V and VI. We are selling assets of these 3 funds. So we did signed a sale of an asset of private equity Fund IV beginning of this year. So we haven't closed yet, so we didn't announce it, but we signed the sale of one of the assets of Private Equity Fund IV. And we are in a very active agenda in selling assets of these 3 funds. So adding all of this, which are a lot of divestments, if not a few, there's over 15 companies being divested Rodrigo as we speak because we're adding, again, assets from infrastructure Fund III and IV, assets from private equity Fund IV, V and VI. So adding all these assets, there are over 15 assets being sold from these funds. So again, I think we -- it's very hard for us to give a specific quarter, sometimes even here for our performance fee realizations. However, the $180 million that we guided in our back day end of '22, we feel comfortable that we'll deliver. We already delivered on 66. So we have to deliver another 110 million, $114 million, which we are confident that we can between this year and next year. Thank you.

[Operator]

Our next question comes from the line of Ricardo Buchpiguel with BTG Pactual.

[Ricardo Buchpiguel, analyst]

I have 2 questions here on my side. First, I wanted to get an update from your perspective in terms of net inflows in liquid strategies. I wanted to, particularly, if you get a sense in the interest from Chilean investors, particularly in equities and credit already during the beginning of the year. If you guys have seen more demand given the insight and should progressively improve throughout the following quarters? And for my second question is more towards the previous one. I wanted to get a sense in terms of how close is the PEF IV PEF V from the hurdle rate and after it hit the hull start paying performance. Okay. Thank you very much again for your question.

[Alexandre Teixeira de Assumpção Saigh, executive]

This is Alex again, and this team complement here my answer. On the public equity and public platform that you asked, we had a 2022 net outflows, I think we mentioned in previous quarters about 2022. As we went into 2023 and the perspective that of better macro conditions in the U.S., in Latin America, specifically in Chile, we started seeing our redemptions dry out -- and then in the second, third and fourth quarter of 2023, we saw positive net inflows. And as I think as mentioned in the earnings call, each one of these families of strategies, public credit and public equity, each one of them with over $750 million of inflows. So we were extremely pleased. Of course, not only the macro situation improved, but the performance of the funds were extremely positive, beating benchmarks in most of them during 2023. And I gave some of the numbers during the call, but I'm extremely pleased and really groundbreaking performance. Our high-yield Latin fund with 14%, 15% net returns, our small-cap and large-cap atom strategy for public equities between 20% and 30% returns and small cap Chile, the same extremely positive returns, of course, the macro situation that benefit the inflows plus the performance of the fund, both of them working together for this kind of inflows that I mentioned over $750 million for each of these strategies, the whole vertical of public equities. And in addition, the whole vertical public debt, public credit. We go into 2024 with the same view as '23. We continue seeing very small redemptions. As you know, these redemptions are programmed so we can actually see them ahead of time, as investors have to place the redemptions ahead of the redemption date. So we have a looking-forward kind of view, and they are very small. Some of the funds close to none, and we have inflows coming in. And we see inflows coming in also from international investors, not only Chile and institutional investors and Colombian and Peruvian institutional investors that were the bulk of the investors of these 2 strategies, we see international exteminvestors coming in also to the strategy. Some of them, as mentioned, they did redeem in 2022. We have some specific issues with our U.K. investors. As you know, the U.K. went through a big guilt crisis in '21, '22 and some of our institutional investors that had to redeem money from all of their liquid funds, including ours, '23 things return to normal, and they start then investing again in front like ours, including ours. So we see net inflows from the international investors ex LATAM in '23, and we see already good perspectives in '24. So we have very good numbers for the first quarter, to be honest. So did I answer your questions? Should I -- did I miss anything here? I'm sorry?

[Ricardo Buchpiguel, analyst]

No. The first part of the question was very clear. I'm not sure if you can discuss that, but if you could get a sense in terms of the -- how close we are in terms of the hurdle for PFund V and IV?

[Alexandre Teixeira de Assumpção Saigh, executive]

No, fantastic. No, I was -- yes, I was going to answer the second part. I was -- I just wanted to make sure that the first part was -- Great. Well, the second part of your question, yes, we are already in the catch-up phase for our Infrastructure Fund III, and we are far from the catch-up phase for Infrastructure Fund IV. Now we haven't started selling the assets yet. We -- as you know, we have European carrier, so we have to give all the principle back plus the hurdle before we actually go into performance modes, and we are were far because we haven't started divesting assets from the infrastructure Fund IV, I mentioned that we are in the process of selling, but we have not signed and closed any of those deals. For private exit, we sold a significant asset from private equity Fund V, a food distribution company that pushes our DPI, distributable paid-in capital for Private Equity Fund V. If we sell 1 or 2 assets of that fund will reach the performance level, be it a health care company that is also on , be it the agricultural inputs company that we listed in NASDAQ and/or our participation in a SimClub SmartFit, as you know. If we sell one of those 3 assets because of the significant size of these assets, inside our Fund V, it pushes us very close to our -- giving back the principle, getting into the performance fee level. We are now considering selling these assets, 2 of them already listed. So it's more considering follow-ons. I think we still have a hard IPO market ahead of us, at least for the next couple of quarters, maybe in the second half of this year, things get better for IPOs, but we have a significant interesting market already going on for follow-ons. We did several follow-ons for 2 of our portfolio companies in 23, one from Infrastructure Fund III, actually, Etherios, Waterway is a company, and we also did a follow-on for our health care company, the Smartfit in '23. So we will continue doing that in '24, and we see an interesting market for additional follow-ons -- so I hope I answered your question, infrastructure fee already there. Infrastructure far from there and product IFund V , depending on the mosaic of divestments here, we can reach that performance fee mode this year or next year, most probably next year, but we don't actually depend much for the performance fee realization target that we have for this year on private esome time.

[Marco DIppolito, executive]

This is Marco. Can I compliment something, Ricardo, it may be helpful for your question the way you're building up the model. We have about $540 million of net unrealized performance fee. And out of this amount, $234 million from private equity Fund V, $169 million for private equity Fund IV and 110 from infrastructure fund III. If you tie this number to the previous information that Alex gave of $66 million that have been already returned and contrast that with the 3-year target of $180. So if you do -- if you take from this $180 million, the $66, the $110 million that is visible on infrastructure III alone would be enough for us to meet the target for the 3 years. So as much as, of course, we're paying a lot of attention to private equity V and private equity VI and all the considerations that Alex posed, which we still have to return the money before we get into the catch-up, Infrastructure III alone, which is already in a catch-up phase will be sufficient to satisfy the 3-year target that we set on our tax day in 2022.

[Operator]

Our next question comes from the line of Tito Labarta with Goldman Sachs.

[Daer Labarta, analyst]

A question on the management fee evolution in the quarter. Just you had very strong growth in the fee earning AUM, although the management fees did not grow as fast. Just to understand if there was anything in particular why they didn't grow as fast as the fee-earning AUM in the quarter and also incentive fees were also a little bit lower. So it kind of led you to being slightly below your FRE guidance for the year, just to think going forward, if any downside risks on the guidance that you've given for the $170 million for next year, $200 million in FRE for 2025.

[Alexandre Teixeira de Assumpção Saigh, executive]

There are sometimes some quarter-to-quarter movements on expenses, and I also can turn to one, our CFO, to explain better. So sometimes, I think it's better to see the whole year. As we know, we did some acquisitions. We had some synergies in place. Sometimes we do run the synergies in -- and they appear in our numbers in one quarter versus the other. So because in 1 quarter, we had extra costs because we were running 2 teams, and then we don't have to have 2 teams. We synergize to one team, and that shows in the other quarter. So it might have quarter-to-quarter kind of variances, but I'm very confident on the level of expenses that we are running today looking forward, which is the second point of your question, that we will be able to deliver the $170 million of FRE and over 200 million for 2024 and over $200 million of FRE for 2025. In addition to the expense streams that you actually saw for 2023, there are additional synergies coming into 2024, even more so when we hopefully have the 2 pending M&As, again, we -- to give you an idea, in some cases, we think that we can run the businesses with a lot higher FRE. We mentioned a couple of our earnings calls ago that our real estate investment trust business through VBI or through Credit Suisse, they were running at 30%, 40% FRE margins we can definitely push that up to our kind of margins. The same for our averaging carve-out global private market solutions business, a 30% margin business, I think we can push that up as well. That will come over time. It doesn't happen again from one day to the next. That's why during '24, we call this more of a transition year because we don't know when these big deals are going to close. Again, they were already signed. And so a quarter over the next things might move a little bit. But we walk in to 25 with very strong numbers, as I tried to show during this earnings call with the inflows, organic in terms of this year that are projected to be $5 billion. We get into $25 million with $38 billion of fee earning AUM, you do the math buildout average management fee you see what kind of revenues you go into in '25. And depending on the margin that you apply there, you can see that over the $200 million is possible, the chances of us setting that number increased with every cap. So I think we're in a good place as of today. Of course, we have to continue to work very hard and deliver. But I think we're in a good place. I think the chances of us hitting the numbers went up over the last quarters. Ana, do you want to complement on anything about the expenses?

[Ana Russo, executive]

I think as I mentioned during the first part, I think it's a good a base for us to consider for -- at least for the first quarter of the year is our average that we have done in the beginning of 2023 since the fourth quarter had some catch-up of one-timer. So we talk about our personnel expense being around $15 million and always expenses are -- we are preparing and doing synergies. And I think the run rate that we have for between Q3 and Q4 are updating for when we look into 2024. There is a consolidation in integration in next year that we expect to continue in this path.

[Josh Wood, executive]

Yes. And Tito, this is Josh. Just one other quick point on your point around fee earning AUM growing a little bit faster than management fees. There's a timing impact to that in some cases. And just to give an example to take Alex's point just a bit further is that the partnership that we closed with Bancolombia near the end of the quarter, you had a new real estate vehicle come in, bringing about $1.3 billion of fee-earning AUM, but we did not get a full quarter's worth of revenue impact for that. You'll see that as we go into 2024. So some of that is a timing impact just based on how the fee earning AUM flows in, which is obviously in full versus the revenue not being fully loaded until the next quarter.

[Daer Labarta, analyst]

And just on the incentive fees, they were also lower than they were last year. Any color you can provide on that?

[Alexandre Teixeira de Assumpção Saigh, executive]

Well, there, I think it has to do with some of the benchmarks and of course, our funds performed very well. As I mentioned last year, the benchmark also did well. Of course, we beat the benchmarks that we had -- that's why we had incentive fees. But vis-a-vis the benchmark, I think '22 was a good year and a slightly better year as we came in from 2021 also with the low benchmarks, and we did hit for some accounts. We have different SMAs and some accounts the way that you count the benchmark whatever in 2022, we did a little better. There's not much difference there, but it is an SMA by SMA. And again, in some SMAs, even though the absolute numbers for the performance in '22, they were a little lower for some of the SMAs, we were beating the benchmark more than we did this year. And that generates then more incentive fees. And Ana, please emit me here if I I do not mention anything important.

[Ana Russo, executive]

I think that's definitely clear in our incentive fee this year was really concentrated on our credit vertical, okay? So that I just want to highlight that. And there is this concentration this year also sites from last year, which happened in the 2 verticals, credit and public debt.

[Operator]

Our next question comes from the line of William Barranjard with IT BBA.

[William Buonsanti Barranjard, analyst]

So the first one, you comment briefly regarding the possibility to reach the 35 billion AUM 1 year earlier, so end of 2024. My question here is regarding the overall management fee rate. Do you expect any changes here? Or should maintain at the 1.2% that we see currently? And my second question is related to expenses. So could you go through the dynamics of personnel expenses in the new share-based compensation programs in this quarter? I guess I would like to understand how much of the $12 million in equity compensation would be translated into personnel expenses if this program was not in place. And I mentioned during the call that 60% of cash bonus could be converted into shares. So I guess, is this the only adjustment then? Or is there any other dynamics here?

[Alexandre Teixeira de Assumpção Saigh, executive]

Okay. Well, on the program itself, I can -- I just want to say a couple of words and then turn over the floor to Ana here, let me explain in more detail. It is a compensation program that is in addition to other programs that we had. And what we wanted to do here is put up a program that is voluntary. It's not an obligation. Any of our partners and managing directors, they can opt to this program or not. If they opt to the program, whatever, up to 50% of the bonus that this person commits to the program, we will match the same number of dollars in pattress shares. In order for this person in order to be eligible to the program, this person has to vest these shares and its best year in your 3 year, year-on-year, 4 year in year 5. So it's -- first of all, it's in addition to thing that we have. Secondly, it has a lot to do with the retention. I think we are a people business and retaining people in this business is extremely important. We already had significant carry programs, right, which is normal of our business, distributing part of the performance fees to employees. As you know, we call this our carry program. I also wanted to give the senior executives shares of the listed company. We really haven't done that since the IPO. We introduced this program now. So a senior employee, a senior executive at Patria will have carry and now this program that I just mentioned. Of course, it's a retention because the person has to stay in order to be able to obtain the program. We have this program already going on even as a private company. Of course, we readdressed the program as a public company, and we had annual valuations, and we would buy and sell shares from partners and managing directors, more or less the same mechanics that I just described, but instead of having a public valuation, we had a private valuation, someone come in and actually do the valuation once a year for us. And now with the valuation that we traded shares between us and and paid bonuses in shares in the senior executives. So similar mechanics, of course, different now that we are a listed company, and it works a lot in retention. Ana, do you want to give some more detail on the program itself, please?

[Ana Russo, executive]

Yes. Let me just give me a or a full overview about that. And I think, first of all, I think we are all in the comp very -- really have for the launch of that and the acceptance that we have across the company. I think this program is consistent with our industry and peers. And as Alex mentioned, is retain, but also attracted talent to the company as we move -- and this program was launched in 2023 is we work to support our engagement and long-term commitment for the team, and we are able to expand that as we grow, as we have new M&A. So this is actually could be expandable and it's a very strong program. As Alex mentioned, this is a tote that includes our partners and mainly partners on MDs, and this gives the opportunity for the people to direct part of their cash or 50% of the cash bonds as mentioned before, into this program and to have a matching component at that. This is a program that it will be offered going forward because this is part of now of our normal program. And has evolved, actually, when we launched in Q3, as mentioned in previous quarter, has actually had a really great acceptance across. And that's why in -- you see that in Q4, there was a much complete catch-up of that in terms of the program and how we accounted for. So when you mentioned about this $12.4 million, and I could say that when you look into that in terms of this matching program, then we complete account for this line in the fourth quarter, it accounts about 70% of that is related to this matching program that we are considering. Okay. So I don't know if that help you to understand the project.

[Alexandre Teixeira de Assumpção Saigh, executive]

Yes. If I can also complement this we designed this at the IPO, to be honest. And we already have impeded that we were going to give this out over the 3 years after the IPO. So it's a program that was already written it was already there in our perspective that that we were going to give out up to the prospectus as up to 5% that we can actually give out in employee compensation. We haven't even reached half of that number yet, whatever it's a very, very small number that we had. But -- and -- but yes, it's something that we have already incorporated in our numbers since '21, '22, '23, and we knew that we were going to actually effectively do this in the end of '23. So it was already a planned thing and already talked to our partners for a while now for the last 2, 3 years that we have been designing and talking to them about this program. What was the second part of your question again, I'm sorry. That was the first part.

[William Buonsanti Barranjard, analyst]

And the first part was just regarding the management fee rates as you reach your target of $35 million.

[Alexandre Teixeira de Assumpção Saigh, executive]

Yes. I'm sorry about that. I should have answered. It's -- well, as you can see in one of the pages of the presentation is 1.2 million, the number that you just mentioned. As we do close on the 2 M&As, I think it's -- they have a slightly lower effective management fees than the 1.2. I think the number going forward is between 1.1 and 1.15. Ana, can you correct me if that number is correct, please?

[Josh Wood, executive]

Yes. Alex, this is Josh. I think if you do the math, we gave some basic economics on the effective fee rates and the fee earning AUM that we're bringing in on the 2 pending M&As. And I think if you do just a simple math based on our current blended rate and the blended rates implied by the economics that we gave, you'll get to a number that's between 1.0 and 1.1.

[Alexandre Teixeira de Assumpção Saigh, executive]

All right. That is great. And I just add on when you do your assessment, of course, and building up into the model, the new acquisitions are bringing permanent capital and fee-paying AUM that is actually charged on NAV. So this is in terms of quality, visibility and resilience is very high quality. And just consider that when you think about the model.

[Operator]

We have a follow-up question from the line of Craig Siegenthaler with Bank of America.

[Craig Siegenthaler, analyst]

So my follow-up is on M&A. And you've been very active over the last couple of years with expansions in different geographies and products. Moneta JV with BancoColumbia, VBI. But how do you think about existing capacity on the balance sheet and with your currency, the stock today to do more deals? And I think you've been eyeing Mexico for a while, maybe provide us a quick update on your thoughts on expanding into Mexico.

[Marco DIppolito, executive]

So remember what we always say when we think about acquisitions, we're buying products, channel and distribution. So every time I start my answers with this because it's really part of our strategy. So proud of doing 6 acquisitions and adding credit real estate meaningfully now GBMS. I'll start with your second piece of your question. Mexico, it continues to be a priority continues to be a target. So the explanation is mostly on execution. We were not able to find the right assets to start, but we continue to be very excited. We think it's not only a very important geography and very complementary to the platform, but also a great opportunity with everything is going on down there. Regarding the first part of your question, how we're going to fund our expansion. What we've been doing with our acquisitions is funding in a mix between cash and equity, retaining a couple of flexibilities. So there's flexibility relative to when this cash is coming out. Most of the acquisitions have been structured with sellers financing, so giving us time to generate the cash to pay for the acquisition. And in certain circumstances, the we can opt between paying in cash or in equity at our favor, of course, all that to give flexibility for us to be nimble when we make -- we design the strategy, we designed the payment. We do have -- in the later quarter of last quarter, we announced one way to fund our acquisition, which is retaining part of the performance fees. I think we led that very clear, and I'll repeat here just for the sake of clarity, we're not touching on the FRE. We may selectively retain part of the performance fee in order to fund any cash necessities on the short term. So these are tactical movements may occur in order to address the funding needs in the best way possible. And I'll defer to Ana to talk a little bit more about our cash flow. We do remain active in acquisitions. We mentioned in this call that this is going to be an important year of consolidation because we have 2 large pending M&As to be closed, the Abrdn business by end of the first half. And Credit Suisse business most likely by the end of this year, given the complexities of -- or in the particularities of the closing of this transaction. So not a lot of FRE coming through this year, but very solid FRE coming for next year. As a reminder, when we announced the Abrdn transaction and the Credit Suisse transaction, we gave us some guidances for you to work on how much this will bring into the platform for the Abrdn business, what we announced is a $7.8 billion feet AUM deal where where the average fee is between 50 and 60 bps from the average management fee, which will equate to a margin between 30% and 40%. And for the Credit Suisse deal, what we announced is a $2.4 billion at the time of the closing, with the 50 -- with the 70 bps as a management fee and around 50% of FRE contribution. Hopefully, I answer your question.

[Alexandre Teixeira de Assumpção Saigh, executive]

If I can complement, Marco, I think going back to 2019, 2020 and one of the main reasons of why the IPO early 2020 was, Greg, I think we saw this consolidation coming into place I think we were kind of first movers with some few of our peers and then we see some of our peers moving into this consolidation mode. You know the names of the major players in the industry buying, as Marco said, products blind channel, buying geographic expertise. So I think we are a little humble this year, but we were a little bit ahead of the peer group in that sense, very important consolidating the Latin American market and catering to our Latin clients. and also adding to our international clients. I want to come into account. So we have a very interesting menu sets today of over 30 products that give us this ability to continue growing the platform very healthy and actually very comfortable today that we can actually deliver on the guidance that we gave late '22. So this is -- it was by strategy, not by chance that we're here today, thank God I think we're well positioned here. And we will continue to do more. I think we have a bigger balance sheet today and a bigger earnings stream. And what I saw happening as well, and Marco leading this effort, I think that a lot of general partners approaching us now more than 3, 4 years ago, we're convinced that the consolidation is at play in our industry and we need to join forces with Patria because of everything that we can do for them on the fundraising side, on having a listed stock as a tool to attract talent and retain talent and to give the senior executives of this respective general partner liquidity in the future. So things that we saw a couple of 4, 5 years ago, they are actually happening, and we are getting phone calls now contrary to 3, 4 years ago that we had to call people and explain what we were trying to do. So it's pretty interesting to see that happening. I think we're not the only ones getting calls in the industry because the consolidation is at play. But we're definitely getting calls in our part of the world, which is pretty nice to go through this process. Thank you.

[Operator]

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Alex for closing remarks.

[Alexandre Teixeira de Assumpção Saigh, executive]

Well, again, thank you very much for your patience here. And it's a end of the year call. So it's a little longer than usual. So thanks really, really for your patience and dedication to come to the call, participate in the call with your questions. We're so happy to take your questions that an honor to take your questions. And again, we feel very good beginning 2024 now in a strong pace with the guidance that we already mentioned over the call here a couple of times. So feel free to contact us with any further questions. And hopefully, we'll see each other in person in your conferences. And actually, sooner than later, we're going to have in the next 60 days on the earnings call and hopefully coming up with good strong news on 2024. Thanks again for your patience. Thanks for your collaboration and see you guys in person soon. Thank you team as well, and thank you, operator.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.