Vinci Partners Investments Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 9 speakers on the call.

Operator

Good evening, and welcome to DaVinci Partners Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session 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.

Operator

Please go ahead, Anna.

Speaker 1

Thank you and good afternoon, everyone. Joining us today are Alessandro Ota, Chief Executive Officer Bruno Zaremba, Private Equity Chairman and Head of Investor Relations and Sergio Pastos, Chief Financial Officer. Earlier today, we issued a press release, slide presentation and our financial statements for the quarter, which are available on our website at ir. Vinciapartners.com. I'd like to remind you that today's call may include forward looking statements, which are uncertain and outside of the firm's control and may differ from actual results materially.

Speaker 1

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 you'll find reconciliations in the release. Also note that nothing on this call constitutes an offer to sell or solicitation of an operative purchase and interest in any VINCI Partners fund. On results, Vintra generated fee related earnings of BRL53.8 million or BRL1.02 per share and adjusted distributable earnings of BRL57.1 million or BRL1.08 per share for the Q3 of 2024.

Speaker 1

We declared a quarterly dividend of BRL0.16 on the dollar per common share payable on December 5 to shareholders of record as of November 20. With that, I'll turn the call over to Alessandro.

Speaker 2

Thank you, Anna. Good evening and thank you all for joining our call. We are very pleased to join you today as we announce results for the Q3 2024. To kick things off, let's start with a brief overview of our results for the quarter. VINCI reached 70,000,000,000 in AUM posting an 8% year over year growth.

Speaker 2

Our efforts in raising capital for private market funds continue to boost our AUM and FRE with highlights this quarter to a little over R500 $1,000,000,000 in additional commitments including the first coming from a global investor in our credit interest strategy. We also saw positive net inflows in our public equity strategy which we will provide more details further in the call. While during this quarter growth was more measured, we anticipate a strong finish to the year. We expect final closings for VCP4, securing additional commitments for VICC and Credit Infra and completing the 1st closing for SPS 4. While interest rates in the US are on a downward trajectory Brazil's Central Bank is expected to implement modest rate hikes to continue to keep inflation expectations under control.

Speaker 2

Despite these circumstances, VINCI continues to excel especially when it comes to fundraising in private markets standing resilient in a market where many asset managers limited to single strategies have struggled to remain competitive. In that sense, we are getting to a point where the recognition of the brand and attractiveness of the platform has put us in a different position from other local and regional players. We had seen a similar evolution in the US and European alternative asset markets with this sector displaying bigger concentration around the larger names and we are starting to witness the same phenomenon in our Latin America market. Moving on to our segment earnings, distributable earnings reached 57,000,000 in the quarter reflecting a 12% year over year increase on a per share basis. These results highlight our firm's robust trajectory and position us well to continue delivering value and growth.

Speaker 2

Shifting to some very exciting news since the end of the quarter, last week we announced the closing of our combination with Compass. This begins a historic transformation for our firm that will redefine our future. The combination with Compass marks the official establishment of a leading pan regional alternative asset manager with a 1st class diversified product offering with all major strategies across the alternative scope where local, regional and global investors can find a full suite of products. With the combined platform of VINCI and Compass, we have established one of the leading content providers for alternative investments in Latin America. This strength paired with the extensive distribution capability we process creates a formidable presence across the region.

Speaker 2

Together, we serve a vast and diverse client base of more than 2,006 100 LPs spanning both institutional and high net worth investors. Compass brings $41,000,000,000 in AUM as of September 2024 reflecting a significant 10% growth year to date from $37,000,000,000 at the close of 2023. This strong expansion underscores the dynamics and strength of Compass platform, now part of our combined vision to deliver unparalleled investment solutions across Latin America. The combined platform managed $54,000,000,000 in AUM as of September 2024. As we have disclosed when we signed the transaction in March, we needed to secure regulatory approvals across multiple Latin America countries each with its own processes and requirements.

Speaker 2

We are pleased to report that the required steps for closing unfolded smoothly and according to our anticipated timeline. The integration process has been progressing exceptionally well underscoring the strong cultural alignment and shared vision between our teams. We have been working together in close partnership leveraging each other's strength and expertise to create a cohesive united platform. For instance, we have already seamlessly combined operations into single consolidated office in both Sao Paulo and New York cities where both companies previously had independent locations. A significant milestone resulting from this integration is VCP 4's most recent achievement securing its first commitment from a Mexican LP following successful roadshows across Chile and Mexico by our integrated teams from VINCI and Compas.

Speaker 2

This accomplishment is a direct outcome of the combined efforts and extended reach of our joint platform illustrating the real value and growth potential that this integration brings to our investment network and strategic initiatives. We expect many more cross selling opportunities in the future with commitment indications for the first close of SPS 4 to be held in the Q4. Join us on November 25th for an extraordinary call where we will delve deeper into the combination, provide integration and synergies updates, and outline our strategic vision for our combined platforms as we move forward. Moving on to a more recent announcement, the acquisition of La Canc early this week. This acquisition will allow VINCI to launch its forestry strategy.

Speaker 2

We believe forestry is a complementary investment strategy to our current roster of solutions and for which we have a positive long term view. Lacan is a prominent timberland investment management organization in Latin America with BRL1.5 billion in AUM distributed across 3 vintages with the 4th currently in fundraising. Their deep expertise in this area makes them the ideal partner for this expansion with a proven track record that sets them apart and we are excited to offer our clients a new investment strategy. Lacan's team managing 130,000 hectares of planted land and an addition 31,000 hectares of preserved areas. Their extensive experience and commitment to sustainable forestry practices align perfectly with our vision of impactful long term investment.

Speaker 2

This acquisition brings Lacan's people into Vinci's fold led by founder Luis Augusto Cangiorata and a senior leadership team that has successfully managed multiple forestry assets for over a decade. With a diversified portfolio that includes greenfield and brownfield projects in Eucalyptus, Pine and Native Forest, Lacan's presence strengthens our capabilities in real asset investments and provides a new avenue for growth. This strategy provides us with the potential for sustainable value creation in an underserved market and we believe that with Lacan's seasoned team on board there will be additional opportunities to expand the strategy into other Latin America markets in the future. We structured the transaction with a cash payment upon closing which took place last Monday and additional cash considerations in a period of up to 4 years contingent upon fundraising and incremental management fee revenues. We expect the acquisition to favorably impact our AUM and segment results for the Q4 and into 2025 and the transaction is expected to be immediately accretive to FRE per share and DE per share.

Speaker 2

To finalize my remarks, I would like to enforce that these transactions aren't just milestones, they mark the beginning of a new era for Avinci Partners establishing us as the gateway to alternative investments in Latin America. We believe this movement solidifies VINCI's status as a leading full service player in Latin America uniquely positioned to capitalize on the region's high growth potential for alternative investments. This is one of the topics we want to convey in our call on November 25th and we hope to see you there. We will discuss the key aspects of our M and A activity so far, delve into further details on the Compass business team and integration process and provide our strategic vision for the coming years as we grow into Latin America. Thanks again for joining our call.

Speaker 2

With that, I would like to turn the call over to Bruno.

Speaker 3

Thank you, Alessandro, and good evening, everyone. I'll start by covering our fundraising efforts. Starting with public equities, we saw positive net inflows this quarter coming primarily from institutional investors. Our Mosaico strategy secured additional commitments from an offshore institutional investor, a solvenwald fund, with a long standing relationship with VINCI. We share with this investor the view that Brazilian equities are extremely undervalued from a historical perspective against more developed markets and are currently at an interesting entry point for medium- to long term investors.

Speaker 3

As we have been talking with our investment prospects, Brazil is currently 2 standard deviations from the mean when you compare the market's price earnings multiple to that of the S and P 500. Brazil's economy has been growing strongly post pandemic, while the stock market has been practically stable in reais since the beginning of 2021. We are thrilled with the growing momentum of this strategy and the strong interest from international investors. For this reason, we have designated it as one of the priorities in our fundraising efforts in collaboration with Compass. As we consistently highlighted in previous communications, we anticipate a recovery in capital raising as soon as the market presents an opportunity, fueled by our strong long term track record and deep enduring relationship with our clients.

Speaker 3

In contrast, the IP and S segment continues to experience outflows in the Q3, primarily driven by withdrawals within our separate mandate strategies. The record high real interest rate levels in Brazil have prompted some rebalancing across client portfolios, and this led to some review of mandates that were under our control. Meanwhile, our commingled funds, which feature higher fees, have shown redemption stepping off during the quarter. IPNS remains a more cyclical part of our business, with a more direct connection to fluctuations in short term interest rates. With the recent interest rate hike cycle, it is likely that the group will face headwinds for some additional time.

Speaker 3

Shifting to our retirement service vertical, we are seeing increasing inflows for our venture retirement services following the launch of our new platform, Miu Vinci Partners, in the first half of the year. We're excited to share that Miu has recently launched several new investment strategies in collaboration with some of Brazil's top asset managers. Among these, 3 new pension plan funds were created in partnership with VINCI's IPNS and private credit teams, marking a significant expansion of our retirement focused offerings. In addition, Miu was chosen by BlackRock as its partner for the introduction of its first retirement strategy in Brazil. This new equity index fund, specifically designed for retirement, was successfully launched in September, further strengthening Miu's position in the retirement space and underscoring our ability to attract leading global partnerships.

Speaker 3

We believe there is significant opportunities for VRS to further penetrate Brazil's traditional pension market by introducing the technology innovations that address the market's current fragmentation and lack of integration. The conventional pension model in Brazil is heavily analog, often requiring multiple agents, such as managers, insurers and distributors, with limited collaboration among them. This setup restricts investors to a single discretionary strategy per pension fund, making portfolio diversification challenging without holding multiple accounts. We have witnessed a strong feedback to Miu solution in the marketplace and are currently participating in several processes to absorb corporate pension plans in our solution. We expect to continue to see growth accelerated in the platform in coming quarters.

Speaker 3

Now let's move on to our fundraising efforts in private markets. During the Q3, we received a new commitment from a Latin American LP into VINCI Credit Infra Fund under our Private Credit segment, marking the 1st capital subscription from international institutional investors for this fund. This milestone is particularly exciting, and we remain optimistic about future commitments from this channel. In the Q3, VINCI Credit Info raised $250,000,000 primarily from DZLP, but also from our allocators and distributors channel. Demand for the fund remains strong across multiple distribution channels, and we will continue our fundraising effort for VINCI Credit Info throughout the end of 2024 and into early 2025, bringing it closer to our target of BRL 2,000,000,000.

Speaker 3

Within the private credit strategy, we also launched a new strategy this quarter, a new receivable investment fund, or FIIDC. This fund has been well received by allocators and distributors with BRL 100,000,000 raised so far and continues flows every day. These achievements reflect our effective execution of VINCI's strategic plan to expand in private markets and highlights our ability to navigate complex economic conditions while consistently delivering results. The credit inflow on our platform is in line with trends at Compass, where we're also seeing exceptionally strong fundraising in fixed income and credit products. Now turning to our infrastructure strategy.

Speaker 3

VICC reached a significant milestone of BRL 1,500,000,000 in total commitments, driven by strong interest from allocators and distributors this quarter. This fund has already started to deploy capital and has a robust pipeline for the upcoming quarters. This pipeline is positioned at return levels exceeding the Fund's targets, supported by a very favorable investment environment. The market environment continues to be favorable for capital deployment, and the Fund remains on track to achieve its targeted total commitments of BRL 2,000,000,000. We anticipate a final closing for VICC in the Q1 of 2025.

Speaker 3

VCP4, within our private equity strategy, is also gearing up for final rounds of fundraising in the Q4. We continue to receive record breaking capital subscription from local institutions, marking the highest level seen across all VCP vintages. As Alessandro highlighted, the integration and collaboration with Compass has been very productive, and we are already seeing the positive outcomes of this partnership. In October, we secured our first commitment from a Mexican LP within the Compas distribution channel, a significant milestone that represents the initial investment in VCP from this newly integrated distribution network. This client not only indicated the commitment to VCP, but also is expected to underwrite SPS 4.

Speaker 3

This marks an exciting new phase for VCP 4 as well as for other V2 products as we expand our reach and leverage the strengths of our combined platform. Still on the topic of VCP, we are delighted to inform that VCP3 has announced its first partial divestment of our portfolio company, Farmax. This divestment achieved it under 3 years since the acquisition of the company. We allowed the fund to return over 80% of the capital initially invested in the asset at 27% IR. This transaction underscores the private equity team's vision in leveraging opportunities to drive strong returns and create substantial value to LPs.

Speaker 3

Portfolio companies in VCP3 are growing revenues and EBITDA at an annualized rate of 30% 29%, respectively, since the inception of the Fund. This should lead to additional opportunities to return capital and interesting levels of return to our investors. Moving on to SPS IV. This Fund remains one of the top priorities in our collaboration with the Compass team as we work to integrate selected VINCI funds onto their distribution platform. This vintage is attracting substantial interest from international investors, and we anticipate securing the 1st round of commitments from both local and international investors in the Q4.

Speaker 3

The strategy has posted a historical 20% net annualized return in dollars across its first three vintages, which presents a very compelling level of risk return and above what we typically see for opportunistic credit funds in developed markets. Wrapping up, it's clear that Momiento is strong across our private market strategies, with all major asset classes actively fundraising for its flagships. SPS 4, in particular, presents a substantial opportunity to boost FRE growth in 2025. Additionally, Lacan is currently in fundraising process for its 4th vintage, and we will immediately integrate the investment team into our distribution platform to help them successfully raise the funds. This includes introducing the strategy to new local institutions, such as municipalities, as well as reaching our foreign investor base, including both global investors and Latin American LPs from the Compass network.

Speaker 3

All of these fundraising drivers position us well for continued growth and expanded reach across our private market offerings. With that, I'll turn it over to Sergio to go through our results.

Speaker 4

Thank you, Bruno. Let's start by covering management and advisory fees. Fee related revenues totaled BRL112.7 million in this quarter, reflecting a 5% year over year increase. Focusing on advisory fees, we had a strong quarter with BRL6 million in revenues. Year to date, advisory fees have generated close to BRL 28,000,000 in net revenues, underscoring the solid momentum in our Corporate Advisory segment.

Speaker 4

We are confident in exceeding our annual target of BRL 30,000,000 in net advisory fee. Despite a subdued IPO environment, our Corporate Advisory business has consistently delivered strong results. As market conditions improve, we believe we will be well positioned to make an even greater impact to our overall results. Turning to management fees. We observed a 2% year over year increase.

Speaker 4

However, when you take out catch up fees from both periods, management fees grew by 9% year over year, reflecting strong new commitments in private markets. This variation is due to the fact that, while this quarter did benefit from retroactive fees associated with capital raise in VCP4 and VICC, catch up fees were substantially higher in the Q3 of 2023. Fundraising for VCP4 and VICC in infrastructure will continue to come through in the Q4 of 2024. Both funds include retroactive fees clauses, which means new commitments will generate fees from the fund's inception dates. This feature could positively impact our financial results in the coming months.

Speaker 4

Turning to FRE results. 3rd quarter year to date FRE totaled BRL169 1,000,000 or 3.19 per share, representing a 14% year over year increase on a per share basis. For the quarter, FRE reached BRL 53.8 million or BRL 1.02 per share, up 7% on a per share basis. We anticipated a continued upwards trajectory in FRE growth driven by several key factors: new commitments in private markets the impact of retroactive fees a strong pipeline in our advisory service and, as Bruno mentioned, the inclusion of La Canc and Compas figures starting in the Q4. Shifting to expenses.

Speaker 4

Our year to date margins have improved by 100 basis points on a year over year basis, reflecting our commitment to cost efficiency and disciplined expense growth. Notably, when excluding the VRS strategy, our margin for the Q3 of 2024 year to date stands at 52% compared to 50% for the same period in 2023, representing a solid 200 basis points increase. Our core business continues to hold strong margins and demonstrates remarkable resilience, even amidst the challenging condition of the past couple of years. This accomplishment directly reflects our focused efforts in private markets fundraising and rigorous cost management. Regarding non operation expense, this quarter includes some costs related to our M and A activities, mainly attributed to the closing of Mavi acquisition.

Speaker 4

However, we anticipate a larger amount in the Q4, around BRL 35,000,000 primarily due to the closing of the Compas combination and the associated transaction costs and also expenses related to the La Carne acquisition. These are one time costs solely attributed to transaction costs closed in the 3rd 4th quarters. Turning to PRE results. It's worth noting that most of our open end funds charge performance fees on a semi annual basis, with revenues recognized in June December. As a result, the 1st and third quarters typically reflect lower levels of performance fees from our domestic open end funds.

Speaker 4

For this quarter, performance fees were primarily recognized in our public equity segments as the challenged local market conditions have impacted the performance of liquid funds. However, we are well positioned for future growth with over BRL 16.5 billion in performance eligible assets under management across IP and S and public equates, offering a substantial potential source of performance fees as market conditions improve. Additionally, gross accrued performance fee in private market funds reached BRL308 million by the Q3. While performance fees from liquid funds may impact earnings in the near term, we expect private markets performance fees to begin materializing as these funds mature, providing a longer term earning boost. To wrap up, I would like to cover our distributable earnings.

Speaker 4

Adjusted distributable earnings totaled $57,100,000 in the 3rd quarter, or $1.08 per share, representing a 12% increase year over year on a per share basis. Distributable earnings benefited from realized financial income this quarter. Our liquid cash position generated BRL 15,200,000 in the quarter of 2024, a 26% increase over the prior year. In closing, I would like to once again emphasize the positive outlook for fee related earnings over the coming quarters and the strong momentum we are experiencing as a firm. We remain committed to generating shareholder value through both organic and inorganic growth opportunities.

Speaker 4

With that, I would like to close our remarks and open the call for questions. Once again, I would like to thank you for joining our call. Please, operator, you can proceed with the questions. Thank you.

Operator

We are going to start the questions and answer session for investors and analysts. Our first question comes from Pedro Ledoux with Itau. You can open your microphone.

Speaker 5

Good evening, everybody. Congrats on the quarter. Thank you for taking the question. First on Delacam, congrats on the acquisition there. Can you talk us a little bit more about the ambitions that you have for this vertical mid long term perhaps in AUM or geographies or the sub products within that can be explored?

Speaker 5

And the second question more on the numbers itself, the personal expense and other G and A line went up a

Speaker 6

little bit. It's going up a

Speaker 5

bit year to date as well. I know there's some non organic effects there, but if you can talk us a little bit more about the expense line, especially for the mid long at least Q4 and then year ahead? Thank you.

Speaker 2

Hi, Pedro. This is Alessandro. Thank you for your question. I'll take the first portion of your question regarding LATAM. As you mentioned, we are very enthusiastic about and excited about the prospects of Lacan.

Speaker 2

As you know, this is a market where not just Brazil, but Latin America has a huge competitive advantage and now with the carbon possibilities for the assets, we can even enhance the interest coming from our investors, not just by the regular returns of the forest assets, but also with the carbon market related to these assets. We do not have a precise target, but we evaluate that we can reach in this vertical without a lot of investment and the capacity and take in consideration the capacity of the team today that we can reach around $1,000,000,000 of a WAM, something near R6 $1,000,000,000 from R5 $500,000,000 to R6 $1,000,000,000 And in terms of geographies, first I will talk a little bit more about the source of the capital that today for LATCO is basically local money and we expect that already in the 4th vintage that it's under, it's in fundraising. We will have some international LPs coming. So, we're expanding the base of the LPs and in terms of investment for now, we'll keep the current strategy of focus in Brazil because there is a huge space to continue to deploy this capital. But in the future, we think this could be regional and even global type of strategy and especially in terms of Latin America we see there is a potential to expand further than Brazil in other countries there is a lot of possibilities for example Uruguay, Paraguay, Chile and so.

Speaker 5

That's great, Arthur. Thank you.

Speaker 3

Okay, Pedro. This is Bruno. Regarding your second question, I think the only outside effect that we had was incorporation of Maers that affected the Q3. So we closed that deal earlier and that had an effect on a year on year basis. But other than that, the underlying trends below the acquisition of Mago on top of the acquisition of Mago were basically related to inflation.

Speaker 3

So we had salary corrections that were in line with the I mean inflation. And we had some health costs, health plan costs that were a little bit above inflation. But I would say nothing else on a relative or relevant basis that I would point out at this point.

Speaker 5

Thank you.

Operator

Next question from Ricardo Buschpigo with BTG. You can open your microphone.

Speaker 7

Hi everyone. Thank you for the opportunity here to make questions. I have 2 here on my side. So first, can you please update us on the fundraising for VCP 4, and how has been the demand picking up, especially for foreign investors? As I mentioned, it was the, a little bit more of the focus now, in this, in this particular product.

Speaker 7

And also, we noticed the first time we saw in a quarter for a, for a few, for a few quarters that we have like a positive net inflows in the public equity segments. So I just wanted to hear your thoughts thoughts. If you believe this could mark like an inflection point or the recent market duration we saw in the following months, could eventually put, this vertical back on the negative territory in terms of inflows. Thank you.

Speaker 3

Thank you, Ricardo. This is Bruno. So on VCP 4, we are getting to the finish line. We expect to wrap up the fund by the end of the year. We do have still interest spending from international investors and a few of them are in due diligence with us at this point.

Speaker 3

We would expect them to close by the end of the year. I think the highlight over the past few quarters has been a very strong interest from local institutional investors. So I think this was really a point that we made in the prepared remarks part of the call. It has been, I would say, probably the most significant surprise this time around. This fund is going to have a different balance from a local and international LP standpoint from the participation of the 2, we're more kind of half, half and half in this fund.

Speaker 3

And historically, this has been more around 70 plus percent from international investors. I think this has a couple of interesting indications to the future, right? The first is that the asset class is becoming more and more known in Brazil and this is good because it allows us to grow the amount of LPs that we have access to. And hopefully, these LPs that came in in VCP4 and some of them actually already reupping from VCP3, They will be satisfied with the strategy and the returns and will come back in future vintages. I think this is an important point.

Speaker 3

And the second important point is that we are able to generate more potential carry in local currency. This is good because it creates more certainty on the carry because we are not against the dollar in this part of the fund. So obviously with the dollars, you have another variable in regards to future carry results. And having more of the funding reals, I think that's also positive because it creates more certainty around carry collection in the future. So we expect it to VCP4 to wrap up by the end of the year.

Speaker 3

Regarding equities, we did have positive inflow in the Q3. This is coming from international investors. I think there has been more and more of a viewpoint internationally that the valuations of Brazilian securities are really very cheap. This is something that we have been talking with investors quite a lot over the past, I would say, probably year and a half or 2 years. And it's starting to hit home in terms of people really understanding and seeing this has been an interesting opportunity.

Speaker 3

We had the 1st inflow now. And we expect, as we also mentioned in the prepared remarks part, we expect equities to be one of the leading short term opportunities with the combination with Compas. So what we're doing now is that we're launching UCITS platform funds for our equity strategies. So we're going to have one that is going to be Brazil centric, that we're going to be more aligned with our dividend strategy. And then we're going to launch also a new revamped Latin American strategy in equities with the leadership of Roberto, who is our Head of Equity here at VINCI.

Speaker 3

He's going to lead that effort and we're very optimistic about these two products. So for the Brazilian usage funds, there is apparently already some demand from pan regional institutional investors and we basically they have big exposures to passive index funds and we're going to try to convert part of that into these active strategies. And then in LatAm, Compass at some point in time a few years ago, it was a very, very big player in Equities LatAm and we believe with the combination of our strengths we can recover that position. So it's another part of the effort that we have with Compass on the equity side.

Speaker 7

Very clear. Thank you. Thank you, guys.

Operator

Next question from Beatriz Abreu with Goldman Sachs. You can open your microphone.

Speaker 8

Hi, Alessandro, Bruno, and Sergio. Good evening. Thanks for the call. I have a couple questions. The first one on management fees.

Speaker 8

What was the amount this quarter of retroactive fees, if you could share that? And also, I know that Bruno just talked about the expected additional closings in VCP 4, but if you also could comment about expected closings and the timeline for the other flagship funds that you're fundraising for, that will be great. I'm just trying to get a sense here of how for how many quarters more should we expect retroactive fees to be kicking in or not in management fees, right? And then my second question is a follow-up on Lacun. So you mentioned that you're looking to raise the 4th vintage already.

Speaker 8

What are your expectations regarding timing for this? And if you could share maybe the sizes of the last vintages for Lacun just to get a sense of how big that new vintage can get? Thank you.

Speaker 3

Okay, Beatrice. Thank you so much for the question. So on the retroactive fees, this quarter, we had $3,000,000 flat. So it was really $3,000,000 It was a slower quarter from the funds that had the retroactive fee impact on the numbers. Remember that Q2, I think we had a more relevant impact.

Speaker 3

And also Q3 of last year, we had a more relevant impact. This was a slower quarter. We are still going to have impacts with these additional commitments in VCP4. If they do come through, they might be material. And then the ICC, which is the other fund that we have opened, today we have an outlook of closing that fund in the Q1 of next year.

Speaker 3

But it's possible depending on demand that that is still extended a little bit more. Today, we are at the end of the Q1, but it might let's say, it might push forward another 3 months or so. So it could be middle of next year. So those are the 2 funds that we would expect to have still some retroactive impact for us. Additional significant closes, I think the next now in the Q4, the big one that we have expectations at this point is SPS.

Speaker 3

So SPS, we have been working with investors in this fund for closing over the past few months. We are in a position now that we're starting to get the sub docs for the first close of the funds. The last fund of SPS Funds 3 was around 1,000,000,000 dollars And we expect the first close of SPS to be above the total size of Fund 3. So that's the expectation at this time, which obviously would be very, very good indication. We still have by the end of 2025 to work in SPS 4.

Speaker 3

And starting with a first close above Fund III size, obviously, is a very, very good start and very good indication of what we might be able to get for Fund 4. In regards to Lacan, we are combining with them, let's say, at a moment where they had already started their fundraising for Fund IV. So they already have some commitments. They have commitments that are already signed and some of them are conditioned to minimum sizes, which is something that we see mainly from international investors. They don't like coming at a size of fund that is too small.

Speaker 3

So some of these commitments are conditioned for to the fund reaching a minimum size. We have both of them at this moment in Lacan. I think combining with Lacan and having Lacan access our international distribution platform is going to be very positive. Remember that obviously we were talking about VICC. We have been raising VICC for the past year.

Speaker 3

VICC is a climate related impact fund in infra Article 9 fund and Lacan's 4th fund is also Article 9 and also is now in the new vintage more of a climate related fund. We're going to start exploring carbon credits in the fund as part of the return. So we have already good experience in discussing climate related investments in Brazil because of the ICC, and we believe this is going to be very positive for La Convoire as well. It might lead to good LP conversations and potentially some of them might have interest in joining Vintage 4 for Lacan. The size of Lacan today, the official target of the fund is about $800,000,000 Obviously, we would like to do more if possible, but the size that we are targeting at this point is 800.

Speaker 3

Today, we have commitments that are around a third of this already with very strong visibility, and we're going to work with the management team there to raise the rest over 2024 sorry, over 2025.

Speaker 2

And Beatriz, that's a lesson. Just to complement, we have the first three funds, they are 1.5 in total. The first one is around 350,000,000 or so. The second around 4 to 5 and the last one around 600,000,000 to 700,000,000.

Speaker 8

Perfect. Thank you, Bruno and Alessandro.

Operator

Next question from Guilherme Grispa with JPMorgan. You can open your microphone.

Speaker 6

Hey, good evening, everyone. Thank you for the presentation and congratulations on

Speaker 3

the

Speaker 6

results, especially given the market conditions. Just one question on IP and S. We saw again a little bit of outflow there, SEK 1,200,000,000 outflows. I think it's the same product that continues to see the outflows is the pension strategy, right? If I recall correctly, it's mostly retail driven.

Speaker 6

Just want to get your thoughts going ahead. We should have Selic going up again probably. I tend to imagine it's a headwind to the strategy. So how you guys are seeing the evolution of the of this strategy, If we should continue to see some outflows going forward? Or if you see at some point a stabilization or even a growth in AUM here?

Speaker 6

Thank you.

Speaker 3

Yes, Guzman, this is Bruno. So the trend, they changed a little bit. So in the past, I would say, since the middle of 2023 until the middle of 20 24, we saw a stronger outflow from the commingle funds, so the pension funds and other commingle type vehicles. In the Q3, this trend changed a little bit. So we had less of a less redemptions from the commingle funds, so pension plans and commingle funds and a bigger impact from very specific mandates that we lost that were very low fee pay and that had a bigger impact than we had in other quarters.

Speaker 3

So on a revenue standpoint, I think the withdrawals that we had in the Q3, they are less significant than what we saw before. In the immediate future, we had some big wins in the separate mandate sites. It's not very clear if we're going to be able to put all of them in by the Q4, but we're working on that. The mandates have already been won. It's a matter really of transferring the funds into our custody.

Speaker 3

We're working hard to have them all in the Q4. So the separate mandate side, we expect to see at least a moderation on the negative impact. And then on the commingle funds, although the trend and the higher interest rate environment, as you said, clearly is not positive for this business line, the performance of our funds in the more recent past has been better. So as you saw in the financial Q3, we had a good Q3. These funds are basically partially the funds that we sell to our clients.

Speaker 3

So most of them or all of them, the difference that in the income statement, sometimes we have some hedges that in the funds we don't have. But in general, the performance of the funds, the funds have been better. So we would expect with this better performance for the trends in terms of outflows to continue to moderate. Although without an environment of more constructive interest rates, it's very, very difficult to see significant inflows in IPNS. So I think this is something that we have been waiting for this turning point that we had a couple of quarters over the past 18 months that were a little bit better.

Speaker 3

I remember the Q1 of 2024 was a little bit better. And then I think in the middle of 2023, we had another quarter, which was a little bit better, in which we had some actually positive inflow. But with the current environment, you're right, it's a strong headwind. So hopefully, we can reduce the negative impact in future quarters, but without a more constructive interested environment, it's tough to see a lot of contribution.

Speaker 6

That's clear. Thank you.

Operator

I would like to turn the floor back to Mr. Alessandro Orta for the closing remarks. Please Mr. Orta, you may proceed.

Speaker 2

So, Gerald, I would like to thank you for your continued support and interest. Again, we would like to express our optimism with the future and we are very confident with our recent developments. We would like also to reinforce the invitation for our call on November 25th. So, thank you again and have a nice weekend.

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Earnings Conference Call
Vinci Partners Investments Q3 2024
00:00 / 00:00