Vinci Partners Investments Ltd

NASDAQ:VINP

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, and welcome to the Vinci Partners Third Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer section and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to turn the conference over to Anna Castro, Investor Relations Manager. Please go ahead, Anna.

[Anna Castro, executive]

Thank you, and good afternoon, everyone. Joining today are Alessandro, Chief Executive Officer; Bruno Zaremba, Private Equity Chairman and Head of Investor Relations; and Sergio Passos, Chief Financial Officer.Earlier today, we issued a press release, slide presentation in our financial statements for the quarter, which are available on our website at ir.vincipartners.com. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and outside of the fund's control and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our 20-F. We will also refer to certain non-GAAP measures and your final reconciliations in the release. Also note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any inter-partner in on results, Vinci generated fee-related earnings of BRL 51.3 million or $ 0.95 per share and distributable earnings of BRL 51.8 million or $0.96 per share for the third quarter 2023. We declared a quarterly dividend of $0.17 on the dollar per common share payable on December 7 to shareholders as of record as of November 22. With that, I'll turn the call over to Alessandro.

[Alessandro Morgado Horta, executive]

Thank you, Anna. Good afternoon, and thank you all for joining our call. We are very pleased to join you today as we announce results for the third quarter of 2023. In my opening remarks, I'd like to cover some important topics before Bruno and Sergio go further deep into details on results for the quarter. To start, I want to give some more color on our recently announced partnership with Ares. I truly believe this partnership will set an important milestone, not only for our growth trajectory, but for the company's history as a whole. We are very proud to partner with Ares, one of the leading alternative asset managers globally and believe there will be significant gains for both companies from this partnership. The transaction officially closed less than 2 weeks ago, and we have already made significant progress with the Ares team. This week, we had our first Board meeting with the participation of Peter Ogle, Partner and Head of Ares Corporate Strategy Group, who has formally taken a seat on the board. We are thrilled to have Ares in our Board to share best practices and strategic guidance on investment strategy and business operations to pursue the growth of our platform.In addition to our Board, several subcommittees had kicked off such as the global distribution opportunities for Vinci. In the short term, we will focus on our flagship strategies, which are currently fundraising, VCPI and VIC across private equity and infrastructure. Going forward, we believe there is substantial opportunity to drive value also for other private market strategies, such as private credit and [ VRS ] SPS. We also commenced discussions for local product distribution for Ares in Brazil and of course, M&A opportunities. Additionally, we connected several of ours and Ares heads of strategies to have conversations with the management teams over partnerships and new investment opportunities. We believe a close relationship and proximity between our senior employees could be an important driver to maximize our growth opportunities. We are very excited about the first few weeks of the partnership and about the impact having Ares on board can generate for our platform in coming years. Moving on, I would like to give a brief overview of what we talked about in our Investor Day. We hosted the event at NASDAQ headquarters, and it was a huge success with substantial interaction from analysts on both on-site and webcast attendance. There, we went through Vinci's history, main areas of focus, investment strategies and targets for what we expect Vinci to be at over the medium to long term. We set out a path over the next 5 years to at least double our distributable earnings power. We believe we are in a strong position to achieve these targets we set out in the Investor Day materials. The drivers of growth in our view are already in place. We have strong secular tailwinds that are driving asset migration to alternative asset class in Brazil and Latin America, and those should be the main driving forces for growth going forward. We are focusing our efforts across all fronts with the objective to position Vinci as one of the regional winners in alternatives. This is really important for us to be able to take advantage of the market opportunity the best way we can. We believe that partnering with a leading global player such as Ares to substantially increases our chances to achieve our long-term goals.I would like to highlight a few key messages from the event. The Brazilian market has operated in a very cyclical manner, especially when it comes to interest rates over the last 15 years. We built our business model to excel when we have favorable market cycles, and we have proven to be resilient when facing tougher ones. We are now at an inflection point, leaving a spend with difficult markets given the outcome of the COVID crisis and entering a positive scenario with an easing cycle for interest rates starting in Brazil. Over the last positive cycle, we managed to grow the company with a substantial CAGR of close to 30% in AUM. We expect this next few years to present interesting growth opportunities. Furthermore, we are focused on inorganic growth locally and expanding our footprint into other geographies with a focus on Latin America. The investment from Ares puts us in a very competitive position to make transactions that could be meaningful to our growth going forward. We invite investors that want to dive deeper in our targets and learn more about Vinci to watch our Investor Day that is available on our IR website.To close my remarks, I would like to discuss our macroeconomic perspectives and what we experienced this quarter. Last week, the Brazilian Central Bank continued its easing cycle, maintaining the same pace. Nominal rates are now at 12.25%. The cycle started with rates of 13.75%. And after 3 meetings, they are down 150 basis points. Expectations for future cuts continue to be at the same pace, and we expect nominal interest rates close to the 9% level by the end of 2024. This implies a 475 basis points cut over a year and a half span. This would mean a much more constructive environment for Brazilian assets. We have been actively talking about this likely path over the past quarters, and this scenario is developing as our strategy department predicted. However, it's important to note that this quarter, we suffered from a short-term adjustment in long-term real interest rates, which had a negative impact on market to market and in our liquid portfolio.The short-term impact on new interest rates were not a Brazilian phenomenon, but rather a worldwide one with the macroeconomic environment in the U.S. and the short-term hike in medium to long-term real rates for treasury bonds, Brazilian bonds followed. This led to the impact on our investment portfolio and a temporary halt in the improvement we had started to see in overall flows during the second quarter. Assume it's important to share this with investors. Our medium- to long-term outlook for the easing cycle remains extremely constructive, and we are optimistic on our ability to deliver solid growth over the next few years. However, the short-term trends got a little bit more volatile. I would like to conclude with the following message. When we founded Vinci in 2009, we decided to pursue a business model that could have significant room to scale and the capacity to retain capital in challenging scenarios. We divide our history in 3 phases. The first phase of our company was structuring where we built our segments, capabilities and invested heavily in developing our operations. These efforts in the first phase pave the way into the second, which was diversification. In this phase, we already had all major business lines, and we worked on creating new products and strategies within these segments. Our third and current phase is scaling. We believe to have a complete array of products ranging from private markets and liquid strategies to business solutions, such as IP&S with few punch strategies to complement. Vinci is ready to scale and a favorable environment as we foresee is the few needed to really be impactful in taking our company to the next level. With that, I will turn it over to Bruno to go over our fundraising efforts and pipeline.

[Bruno Sacchi Zaremba, executive]

Thank you, Alessandro, and good afternoon, everyone. This quarter, we have exciting news to share regarding our fundraising. First, let me cover our private market segments. This quarter, we had some important contributions coming from funds across private equity, real estate and infrastructure. Our private markets group has a stellar last 12-month period and now represents nearly 60% of our revenues. First, our fourth vintage for private equity flagship fund is before held an important closing with XP, adding more than BRL 600 million in capital commitments. With this close, VCP IV is at approximately 3/4 the size of VCP III, and we expect further commitments in coming quarters. And this has been achieved in the most challenging global fundraising environment over the past 20 years. Please note that this and any further commitments have a retroactive fees clause that for charging management fees since the start of the fund, which was in the middle of 2022. This close positively impacted third quarter figures. This fundraising with XP also bodes well with something that we have been saying for a while. Brazilian investors are increasing their allocation towards alternative products. VCP IV is efficiency advantage with the most local capital since we started the VCP strategy. This is true in both absolute and relative basis. We are thrilled with the traction seen from locals, especially in this environment, where interest rates are still at high levels. We expect with the easy cycle developing that local interest for alternative products should increase for future vintages across our private market strategies. Shifting to our real estate strategy. Late this quarter, we held a follow-on offering for our shopping mall REIT VISC. This was truly a milestone because for the past few years, primary issuance for listed REITs were basically muted due to the market environment. This follow-on offering for VISC, our biggest and oldest REIT marks the reopening for a strategy that is highly important for Vinci. Given the difficulty to raise capital for REITs over the last few years, the pipeline for high-quality assets is stacked. We closed the offer in the end of the quarter and in less than 1 month, the proceeds were fully allocated. This reinforces our ability to deploy and a better market outlook bodes well for more offerings over the next quarters. All our 7 listed REITs are fully allocated and ready to come back to market as soon as there is a window. We believe that in a positive environment, this could be impactful to us. Moving on to our Infrastructure segment now. This quarter, we had additional commitments for our Climate Impact Fund VICC. VICC continues to see strong demand from international investors. This quarter, we added more than BRL 300 million to the funds. At this level, the fund already has 75% of its BRL 2 billion target between signed and approved commitments. We should see new subscriptions over the next few quarters as we expect to reach the fund's target in the first half of 2024.To finalize my remarks on private markets, I would like to cover a topic we introduced in our Investor Day. Early last year, we shared a fundraising target of BRL 10 billion in capital commitments for private market funds. We are at approximately 60% of this target and things were on track to achieve at some point next year. However, as we will launch new funds at the beginning of 2024, we decided to roll that target to BRL 15 billion for year-end 2024. In addition to new commitments across the vintages we are currently raising, we should experience a pickup in follow-on offers in our REITs and the launch of 3 new funds. First, we are working on launching VIR V, our fifth vintage for our impact strategy within our private equity division. We expect some good traction as VIR IV is delivering solid returns and has already divested from assets and returned capital to LPs. Second, SPS IV, the fourth vintage in our special situation strategy. SPS has left vintage totaled just over BRL 1 billion in commitments and those were raised only through high net worth investors. We believe the extensive track record of the strategy, alongside Vinci's distribution capabilities, should contribute significantly for the fundraising aspect of SPS IV. Lastly, we plan to launch VFDL2, our second vintage for our development strategy within real estate. We are working on divesting from the assets within VFDL1, which could be an important driver to determine the next vintage fundraising timing. To summarize, all these products show great prospects and are expected to launch in the first half of 2024. As previously mentioned by Alessandro, on driving behind our partnership with Ares was to leverage their wide and extensive worldwide relationship to offer first-class products in Latin America and Brazil. Therefore, we are excited as this partnership could be an important driver to capture international capital for this next round of fundraising. Ares reach and scale are substantially incremental to our own distribution capacity. And the partnership has the goal to allow us to reach capital pockets that are currently not available to us or increase our penetration in the ones that are. We are very excited to work with them from design to market in these funds in the class of 2024. We'll keep investors on the loop as we evolve other fundraisings. Now to close my remarks, let me provide some insights for the liquids and IP&S portion of the business. The Brazilian environment over the past quarters with interest rates at a high level and some political noise was harmful for both segments. This is not an exclusivity for Vinci. Over this period, the Brazilian liquids industry suffered from sizable redemptions and mark-to-market effects.I would like to reinforce that our close relationship with our clients alongside our proprietary distribution channels and a more institutional exposure provided us stability when several local liquid managers were struggling to stay in the business. With that said, as we have been saying over the last months, we expect that the positive economic trend in Brazil will be an important driver for inflows to return to liquid products. In our experience, investors need to observe rates effectively falling to churn their allocations from fixed income to more diversified liquid products, such as hedge funds and long-only funds.The overnight rate in Brazil continues to decline, but it's still at a higher level, making the trade-off yet a bit harsh. For IP&S products, institutions tend to outsource their investment decisions when long-term real rates stabilize at a level below their actuarial goals. We reached this threshold at the end of last quarter. But as Alessandro mentioned in his remarks, we experienced a short-term market adjustment that is still not constructive. However, we are optimistic with trends going forward that could result in a more appealing scenario for inflows across the segment. Bottom line, we expect improvement in both IP&S and liquids at some point next year. Bear in mind that IP&S experienced a huge pickup in inflows last time facing favorable conditions as we raised BRL 5 billion in 2021. And with that, I'll turn it over to Sergio to go through our results.

[Sergio Passos Ribeiro, executive]

Thank you, Bruno. Let's start with the management and advisory fees. Fee-related revenues totaled BRL 107 million in the quarter, our best quarter ever in revenues. Management fees were the center of this growth, boosted by new commitments for the VICC and VCP IV and the catch-up effect, recognizing fees since the beginning of each of the funds in just 1 quarter. It's important to highlight these one-off effects, but keep in mind the subscriptions translate into fees for Vinci over the long term with the commitments charging fees for the next quarter zone. With new prescriptions coming over the next few quarters for both V ICC and VCP IV, we should expect retroactive effects once again and possibly more discrete upsides from FRE as the funds have other closings. However, it's difficult to predict when exactly disclose and contributions will take place. When we look into our segments, private markets have been pushing growth for the platform while offsetting challenging markets for liquid strategies and IP&S. As Bruno mentioned, we expect this part of the business to improve in 2024 as we continue to expect nominal interest rates to go towards single-digit levels. Another important factor to mention for third quarter revenues is that advisory fees posted a weaker quarter as we anticipated on our last earnings call. This revenue stream presents a significant cyclicality depending on the timing that the deals close. That's why when you think about advisory revenues, we target full year revenues. We can anticipate that we just signed 2 transactions that should close still in 2023 or at the latest early 2024. With the amount already in-house for the fourth quarter, we will meet our annual target for our device revenues. We can still see some upside in 2023, depending on the closing time for these 2 signed transactions. Turning to FRE results. This quarter, FRE was BRL 51.3 million or BRL 95 per share, up 7% year-over-year on a per share basis. FRE continues to grow with the strong fundraising for private market products over the last 12 months with highlights for this quarter's subscriptions that triggered retroactive fees . When we discuss trends for FRE going forward, we should continue to post health numbers with the ongoing fundraising for private markets products that should extend in 2024 with new vintage incoming, although there could be some quarter-to-quarter volatility as the closes for VCP IV and VICC take place. Margins remained flat on a year-over-year basis, and we should only experience increase after we see a more significant reacceleration of AUM growth. Even though we have been very cost conscious in 2023, management fees have not reached its full potential for us to see some margin expenses as we continue to experience a very tough environment across our liquid business. That is partially offsetting the success across our fundraising in privates. Shifting to Per results, as we discussed before, first and third quarters are usually softer for performance fees, given that most of our liquidity funds recognized fees in June and December. And most of our liquid funds are not yet at the crystallizing fees phase. Diving deeper into our private market funds, gross accrued performance fees surpassed BRL 200 million in the third quarter. As we divested from assets and returning capital to our limited partners, we should see a very important impact coming from this front. As we talked about in our Investor Day, PRE results from our private market funds should be expected starting from 2025. To wrap up, I would like to cover our distributable earnings. Distributable earnings totaled BRL 52 million in the third quarter of 2023 or $0.96 per share, down 27% year-over-year on a per share basis. Although posting another solid quarter for our asset management business with record high management fees, we experienced a strong headwind in financial income this quarter. As previous mentioned by Alessandro, this quarter, we had a global short-term effect on long-term real interest rates due to a prolonged rate hike in the U.S., which, alongside persistent inflation and economic strength translated into higher long-term rates for our U.S. treasurers. Brazilian bonds rate curve followed suit and widen it considerably, affecting our liquid portfolio which is mostly comprised by Brazilian federal government fixed rate bonds. As a comparable basis, Abema has an index, IHFA for funds with similar allocation as those in our portfolio, and they also struggled this quarter with returns close to 20% of the CDI rate. Our total cash return in the third quarter yielded just above 40% of the CDI rate. This resulted in our realized GP and financial income to shrink 55% year-over-year, negatively impact distributable earnings results. We experienced basically the same effect, but in the opposite way during the last quarter. Our distributable loans received a significant positive boost from financial income as our total cash return reached approximately 120% of the CDI in that quarter. And we anticipated in our call that we would expect lower contributions in the third quarter as markets had turned. On a positive note, Brazilian Central Bank continues to cut rates, and we see a more constructive scenario for 2024. With that, I would like to close our remarks and open the call for questions. Once again, we would like to thank you for joining our call. Please, operator, you can proceed with the questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Ricardo Buchpigue from Banco BTG Pactual.

[Ricardo Buchpiguel, analyst]

I want to ask about 2 topics. First, can you please update us a little bit with the net inflows environment, especially for liquid funds looking particularly in 2024. And still related to this kind of a fundraising topic, can you also remind us how much capital you have already raised in the flagship funds? And what are the targets so we can know what we could expect in the following quarters? And then for the second question for a second team, I understand that during the Investor Day, you guys mentioned an expected average annual PRE of around 100 to BRL 120 million between 24 and 28. But given the still kind of a challenging environment that we are facing capital markets and still private market vintage yet to mature the results? Does it make sense to expect a much lower average of [Indiscernible] for next year and picking up to this target in the following? And also, what would be the main asset classes driving performance fees next year?

[Alessandro Morgado Horta, executive]

That's Alessandro. Thank you for the question. Regarding the current net flows in terms of the more liquid asset classes, we are seeing more muted moods. So we are not seeing strong either inflows or outflows. So we are seeing more stable AUM regarding, of course, there is a current appreciation of the liquid, especially public equities because the market moved up in the recent weeks, but not relevant or outflows or inflows that is really very packed with more volatile movements that we didn't see recently. So it's kind of stable. Regarding the flagship funds, VCP IV we are reaching about 60% to a little bit more of the target fundraising. We expect this fundraising for VCP IV to end just on middle of 2024. So we are still waiting for a final push, especially for International Peace. So we are still confident that we will reach the target. And maybe we can even surpass since we are currently making a further push, especially in Asia, Middle East and Far East as we speak. Regarding PRE, I will leave to Bruno to go in more details about it.

[Bruno Sacchi Zaremba, executive]

Okay. Good to talk to you and thanks for the question. I think you also asked on the targets. We are working now on 3 funds. VCP IV, VICC, and the Infracredit funds. These 3 funds together, they have a target of about BRL 7 billion. We are probably across the 3 of them, we are probably around 70% of the target at this point. The rest was raised in the REITs, right? So for the rest of 23 and 24, we're going to work the balance of these 2 funds. And in 24, we're going to add VIR V and SPS IV. Those 2 funds should have a target between EUR 3 billion and EUR 4 billion. So that's how we get to the $15 billion overall target that we gave until year-end 2024, you had all those funds and also the expectations that we have for the REIT side of the business. We just raised BRL 300 million, and we are in the market now to raise additional money for VISC. So that's how you get to the EUR 15 billion. In regards to PRE, we gave this Investor Day guidance, but the main contribution here will be starting probably in 2025, 2026, when VCP III starts accruing performance. So until that, or paying performance, right, until that happens, we're going to be basically mostly with the liquids and IP&S funds. These funds would, in a good year, probably be able to give us a number between EUR 50 million and EUR 60 million in revenues if we have a good year. By the second quarter this year, we were very optimistic about the rest of the year and the markets we're looking up and things were looking good for the country and the markets given what was happening with interest rates. But with the hike in the interest rate curve in the United States, that movement got temporarily delayed, right? So we had the same movement in the curve in Brazil, and that affected the markets, which was an effect that happened mostly during the third quarter. And as Sergio made a comment, it impacted our liquid portfolio as we have been saying over the years that most of the liquid portfolio is in federal bonds with that widening being triggered by the widening in the United States, we had a negative mark-to-market in that position. And that's the case for the overall market. So fixed income funds performed poorly in the third quarter, and the stock market also did not perform very well. But now that the U.S. interest rates are starting to come down a little bit with some deceleration in the economy, we're already seeing tightening in Brazil. Hopefully, that will translate at some point with better flows in the liquid side.

[Operator]

Our next question comes from Pedro Leduc from Itaú Corretora de.

[Pedro Leduc, analyst]

First, on this negative impact that the higher rates had in 3Q, Morton funds and other positions. Given that in 4Q so far, rates have come down a little bit, again, as you just mentioned, should we expect the opposite swing or some sort of benefit there? Or have you closed out or done hedges or something like that? And that's the first question. And the second, a little more structural. You mentioned have used the local retail distribution platform for one of the funds. There was a record, both relative and nominally I'm guessing that you like the experience that you would like to continue using them. But how does it differ a little bit on distribution commissions from the other channels that you're using shows us that we can model it properly. Thank you.

[Bruno Sacchi Zaremba, executive]

Pedro, thanks a lot for the question. So on the returns of the liquid portfolio, you are right. I mean with markets tightening, the performance should be better. We have talked about this over time as well that we expect the return on the liquid portfolio on a net basis to be around 80% or 85% of the fixed rate in any given quarter. In the third quarter, in the second quarter, we did 130%. In the third quarter, we did about 40%. So if you add the 2 quarters, we are kind of around the average, let's say, it's around what we expect from a normalized standpoint. So hopefully, we can get back to that kind of 80% level with a more stable market environment. In regards to the distribution, the distribution, the cost is amortized in our income statement across the life of the funds. So it already started in the third quarter, and it's gonna be going on for the next several years. So that's how it will be impacting the income statement. So it's already impacting FRE and will continue to impact FRE over the course of the next several years as the fund life goes on.

[Pedro Leduc, analyst]

Okay. And should we expect you to use this channel more for other products going forward as well?

[Bruno Sacchi Zaremba, executive]

Yeah, we have used this channel in the past. It wasn't our first time. So VCP III already used high net worth distribution channel. VIR IV use high net worth distribution channel, VCP IV used as well. We are planning to use -- we are planning to use it for SPS IV, VES, which is our infra fund in the water sewage space, also use it. So I think overall, what has been I think the main takeaway here in my view is what I mentioned during the pre-quarter part of the call. Despite the fact that we had interest rates above 13% for most of the fundraising cycle VCP IV, it is the biggest allocation we had from local investors to the strategy. So we had the biggest -- and this is for all investor classes. So we had the biggest allocation from high net worth. We had the biggest allocation from distribution in platforms in Brazil. So I think this is a very important point which will -- goes back to the thing that we have been discussing over time, the under allocation that we see to our asset classes in the local market. And even with a double-digit 13% nominal interest rates, we are still able to see those inflows into the private funds. So it's something that really will help, I mean, has helped over the past a years and a half, and we'll continue to help going forward as the reallocation in the local community to toward the alternative asset management space continues.

[Alessandro Morgado Horta, executive]

And Pedro, sorry, that's Alessandro. Just to add on top of Bruno said, one message is very important. We use this channel, but we are very cautious in terms of the cost of the distribution. So we always compare with the cost of a placement agent outside Brazil and et cetera, to really this fundraising effort to make sense for us in terms of costs. And more than that, as Bruno said, we have been very successful in terms of fundraising with institutions. In that case, for Vinci at least, we use our proprietary distribution channel. So this specific distribution for VCP IV, for instance, it's more for retail and high net worth and affluent than really covering any kind of institutional distribution inside this number. So on average, I think in terms of cost for us, we have been able to keep distribution costs very under control, and we are very aware that should make sense at the end of the day. So not raise money at very high cost does access for us.

[Operator]

Our next question comes from Beatriz Abreu from Goldman Sachs.

[Beatriz Bomfim de Abreu, analyst]

Alessandro, Bruno and Sergio, my first question is regarding fee revenues. So I know that this quarter, you had the benefit of retroactive fees in the VCP IV and VICC funds, which naturally inflated the implied management fee for private market strategies this quarter. But what should we expect in the coming quarters? I understand that, that can vary depending on additional closing for these funds. But do you think that the implied management fee for private market strategy should come down from the strong number in 3Q, or should it be similar from 3Q? And then my second question is on REITs. So if you could comment a little bit on how your listed REITs are currently trading versus NAV. And if you expect any additional follow-ons already on, in this quarter. And then you mentioned that you're looking to raise a new development strategy fund within real estate, VFDL 2. Is that included in the BRL 15 billion guidance? And what would be the size that you expect to raise in that fund?

[Bruno Sacchi Zaremba, executive]

Okay, Beatriz, this is Bruno, thank you for the questions. So for the third quarter, we had a onetime impact on our revenues. It's a number between $5 million and $8 million from the retroactive fees. So I think that's something that, going forward, we would expect to happen, but it's as Sergio mentioned, it's very difficult to time when the close are going to happen, right? So we expect to have a closing in VCP IV the fourth quarter again. VICC should also have inflows. And then probably towards the middle of next year, we should have continued inflows in both funds. So that, I mean, could be bigger one quarter to the other will depend on when the closing happen, right? But the third quarter impact was the one that I mentioned to you.In regards to REITs, we mentioned this also in a prior call, REITs are the asset class that we have on the private side that are most correlated to interest rates. So when there was during the second quarter, a very strong optimism regarding lower interest rates and the curve lower than expectations on future interest rates lowered as well. The REIT had a phenomenal performance. We had a very strong net earnings number during the quarter because of the mark-to-market from the REITs. That reverted somewhat in the third quarter, and it continues to revert somewhat in the fourth quarter. So we had a situation that at the end of the third, second and beginning of third quarter, we had several of our funds above NAV, and we had a very short period of time sort window of time to do a primary offering we did with VISC in that short period of time that we had the window was open. But now unfortunately, the window is closed again, right? So we had -- I mean, overall, the REIT industry coming down as a mirror image of the rise in the curve, right, of the interest rate curve. So now we need to see interest rates on a nominal terms really going down, which will continue to happen in our view, and that should lead to opportunities for us to come back to market with the REIT at some point in the next few quarters. We are again doing asset for share transactions, which we did some in the past few quarters. The issue with those transactions that they are very complex to structure and usually the volume is smaller. So we cannot do like 700 million primary issues, which we could do with VISC doing assets for a share swap. The numbers are less relevant, but we are exploring that avenue now that the window for REITs are, is closed. And then finally, on VFTL 2, the first fund was just slightly above EUR 300 million in NAV. That first fund is doing very well. We were very successful in deploying the capital in the construction of the industrial sites there. And the outcome of the fund is looking to be very positive. So I would expect that when we come back to a second vintage fund is gonna be a bigger volume. We still haven't figured out the exact number, but it could be like EUR 0.5 billion, something like that. And it is included in the EUR 5 billion target that we put forward in the Investor Day. Very clear.

[Operator]

[Operator Instructions] There are no further questions at this time. I would like to turn the call back to Alessandro Horta for closing remarks.

[Alessandro Morgado Horta, executive]

Again, I'd like to thank you all for attending our call for your continued support and hope that to come back in the next quarter to deliver again our results, and we hope that we have a very constructive scenario going forward with interest rates going down, and we are very confident in the performance of our platform going forward. Thank you very much, and have a good night.

[Operator]

Vinci Partners Third Quarter 2020 Earnings Conference Call is now closed. Thank you for participating, and have a good night.