Vinci Partners Investments Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2024

There are 10 speakers on the call.

Operator

Good afternoon, and welcome to DaVinci Partners 4th Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in 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 today are Alessandro Ota, Chief Executive Sir, 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 and our financial statements for the quarter full year, which are available on our website at ir. .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 We do not undertake any duty to update these statements.

Speaker 1

For a discussion of some of the risks that could affect results, please see the Risk Factors We will also refer to certain non GAAP measures and you'll find reconciliations in the release. Also note, enough on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in VINCI Partners Fund. On results, Vinta generated fee related earnings of BRL57.3 million or BRL1.07 per share and adjusted distributable earnings of BRL63.6 million or BRL1.18 per share for the For full year numbers, VINCI posted fee related earnings of BRL208.4 million And adjusted distributable earnings of R245.8 million dollars. We declared a quarterly dividend of $0.20 on the dollar per common share payable on March 7 to shareholders as record as of February 22. With that, I'll turn the call over to Alessandro.

Speaker 2

Thank you, Anna. Good afternoon and thank you all for joining our We are very pleased to join you today as we announce results for the Q4 and full year 2023. This year has truly etched its mark in the history of our company. It was a fantastic opportunity to share with shareholders and investors our targets and goals for VINCI's future. Another milestone for us was the partnership with ARRIS, a market leader in the alternative asset manager space worldwide.

Speaker 2

We believe this is just the beginning of a successful partnership and I will provide some additional details in just a moment. In my opening remarks, I would like to cover some important topics before Bruno and Sergio go over the specifics. To start, I would like to be assertive with the following message. VINCI delivered Strong results facing another year with a challenging environment worldwide. We are reaping the benefit of a well developed platform with several business lines built to succeed across market cycles.

Speaker 2

We posted another quarter of solid growth with FRE and DEE increasing respectively 14% 17% year over year on a per share basis. We ended the year With R69 $1,000,000,000 of AUM, with more than R4 $1,000,000,000 in capital subscriptions for our Private Markets funds throughout the year. Fundraising remains on a growth trend going forward. 2023 started at a slower pace and we experienced a significant pickup towards the second half of the year with several strategies gaining traction. Our shopping mall REIT, VISQ, raising more than BRL1 1,000,000,000 in a 3 month span, a stellar fundraise to reopen primary issuances For public REITs in the Brazilian stock market, as I've highlighted over the past earning calls, This should be an important growth driver for VINCI when facing favorable conditions.

Speaker 2

We have 7 funds that can proceed with new issuances. In infrastructure, we officially closed the mandate To manage the Sustainable Regional Development Fund or FIDIRS with initial AUM of approximately BRL1 1,000,000,000. This was truly great news from our infrastructure segment and Bruno will cover that in more detail in a moment. Overall, we had important commitments for VICC And VCP4 throughout the second half of the year, while also benefiting from market appreciation across the board. Momentum is great as we enter 2024.

Speaker 2

Now, I would like to share our main areas of focus for this year. First, we are acutely focused on developing VRS And we are starting to experience traction. Last week, Presently presented to the general public with an article in a major newspaper in Brazil featuring a detailed description of our product and the market opportunity ahead of us. The product is now fully accessible to the public through dedicated apps and web Now, let me delve into a more comprehensive description of our vision for VRS. Over the past year, we launched the product to our high net worth investor base and our team concentrated their efforts into better testing and tracing what would be our next steps as we started fundraising.

Speaker 2

During that period, we encountered several unsatisfied investors with products that are not suitable for the long term goals and the overall inefficiency of the incumbent banks. With that in mind, We start 2024 tackling a few fronts. First, we will expand our capabilities to raise money with High net worth investors, alongside their need to find a better fit for their retirement goals, there is also legislation approval to tax for pension products due to its tax and state planning benefits. 2nd, we are aiming for The corporate market is a fraction of the individual market, but often it is the first contact that investors have with pension plans. Moreover, during our research, we came across several instances that indicated the experience for corporate plans even worse than the overall industry because the incumbent providers Partnerships with platforms and FinTechs to enhance our penetration within retail investors.

Speaker 2

We are continuously exploring additional options and we ensure investors stay informed as we develop them. Our second area of focus for this year is developing our private markets fundraising power play. As we previously announced in our Investor Day in October, we updated our private markets fundraising target to BRL15 billion until the end of 2024. As of the Q4, We already have BRL8 1,000,000,000 raised and we work to reach the target with several initiatives. First, new closings to our existing flagships that are ongoing fundraising, such as VCP4 in Private Equity, VICC in Infrastructure and VINCH Credit Infra in Credit.

Speaker 2

2nd, new vintages of existing strategy which we plan to raise this year, such as SPS IV in Special Situation, VRI V in our impact and And 3rd, follow on offerings for our listed REITs. As I mentioned earlier, VISC alone raised more than EUR 1,000,000,000 In a 3 month span, we think this could be an important contributor with a more constructive environment and mainly with lower nominal interest rates expected as the Brazilian Central Bank continues on its easing cycle. Lastly, we work to leverage our partnership with ARRIS. One of the aspects that we found the most appealing in our partnership with ARRIS Was the possibility to have several interactions with their management and commercial teams to seek best practice enhancements, potential efforts to raise additional capital to our funds and to distribute ARRIS products in Brazil. We have been mapping For each of the strategies, what are the opportunities to allocate capital and where we can find synergies on the investment side And on the fundraising side, in the short term, we will tackle fundraising efforts for VCP4 and VICC, SCC, which are the main flagships we are working on fundraising at the moment and collaborate with ARRIS to leverage We see substantial upside for fundraising across other strategies, And one of those would be SPS.

Speaker 2

We are very excited for SPS 4 and as we advance on those fronts throughout the year. Before diving deeper into market framework for 2024, I would like to highlight the pivotal role of our data and macroeconomic research teams. In the second half Of 2023, we experienced in Brazil a temporary impact on real interest rates following the challenging macroeconomic environment in the U. S. And a bump in medium to long term real rates for treasury bonds.

Speaker 2

This period was marked by market speculation about the Brazilian Central Bank's stance on the forthcoming easing cycle. Our in house macroeconomic research team highlighted the transient nature of these fluctuations, which allowed our investment strategies to take advantage of the market dislocation. We believe Having a top tier strategy team is a key foundation to a successful asset management firm. As I conclude my remarks, I wish to share our insights on market expectations and their implications to VINCI. Last year, the discussion in global markets Expectations are for an impeding easing cycle globally.

Speaker 2

This debate has evolved to timing and intensity Financial markets around the world. It's not worthy that Brazil is ahead of the global curve in the easy cycle It has already implemented 5 rate cuts with rates decreasing from 13.75% to 11.25%. It's worth mentioning that Brazil trade surplus is poised to increase even further in the years ahead. The additional gains will likely come from a significant upward leading to further GDP growth. This outlook is excellent for assets, both private and public is substantially positive to drive meaningful relocation in alternative asset classes as we saw in the 2016 When we combine these elements with a commitment to comply with the Brazilian fiscal framework, We see enormous potential for the economic landscape, which would mean a constructive environment across all strategies.

Speaker 2

As overnight rates revert to single digits, the landscape for investors is shifting, prompting a quest for diversification to fulfill their financial objectives. Another important positive note worth mentioning is that last week a new measure has been approved restricting new issuance of tax free CDs Backed by agriculture and real estate assets, which had been absorbing a significant amount of flows. In recent years, the Brazilian asset management industry has suffered with substantial outflows with a considerable part Migrating to tax free CD products issued by local banks. The new measure aims to restrict the type of tax free CDs that can be issued and also increase minimal liquidity requirements for these instruments. Market expectations anticipate the cancellations of 30% of new issuances.

Speaker 2

This opens opportunity Throughout the years, we have diligently constructed a robust platform featuring a complete array of alternative products tailored to meet the needs of our clients. We are confident that as the transition away from fixed income unfolds, Cinci is strategically positioned to capture substantial market share. With that, I will turn it over to Bruno to go over our fundraising efforts and pipeline.

Speaker 3

Thank you, Alessandro, and good afternoon, everyone. I would like to begin my remarks reinforcing what Alessandro mentioned earlier in the call. VINCI had another strong quarter fundraising for private markets. Momentum is picking up, and we're excited with the prospects for the year ahead. First, let me provide some color on 2 important closings held in the Q4.

Speaker 3

Our shopping mall REIT, VISC, held another closing this quarter. VISC raised BRL875 1,000,000 through an oversubscribed public follow on offering closed in mid December. When you add to the previous offering held in late September, the Fund added BRL1.2 billion in perpetual AUM for VINCI in a 3 month span. We raised this amount backed up by a diverse investor base, comprising retail, institution and other funds, underscoring the strong demand for The capital raise not only solidified our Leadership position in the REIT market, but also enhanced portfolio diversification. We closed our follow on offering with 7 advanced prospect acquisitions to fully deploy the capital, of which 2 were already closed.

Speaker 3

The real estate market is full of opportunities to deploy capital, and we should go back to the market to capitalize on and seize these opportunities. The other important close was in our infrastructure strategy. Back in late 2022, we announced that the federal government had selected VINCI to manage the Sustainable Regional Development Fund, or FIDIRS. Given the fund's complex structure, We spent the year discussing details and specifics for demand and we carried out the transfer in December. Fidriz will start with roughly BRL1 1,000,000,000 in AUM and has room to grow over the years, both by appreciation and new commitments by the federal government.

Speaker 3

We are proud to be the partner of choice for such product to Brazil's sustainable infrastructure landscape. The Fund will work on 3 different fronts. 1st, Structuring concessions and PPP projects helping state and municipalities to bring their which can be carried out through participation in guaranteed funds and third, directly investing As a regular fee base, we will have a management fee over the committed capital that should be the main revenue stream in the short term. We will keep investors up to date as we structure these operations and other revenue streams take place. On a general note, this fund is key to consolidate our position as a leader in infrastructure investments in Brazil.

Speaker 3

This is another important step in a segment that has substantial room to scale over the next few years. To conclude the quarterly updates on Private Markets, I would like to highlight the following. Our Climate Oriented Fund in Infrastructure, VICC, I see closed a few commitments in the end of the year, reaching 75% of its fundraising targets. Another noteworthy achievement is that VICC has officially attained Article 9 compliance. To put this into perspective, only a selected few funds worldwide meet the standards set by Article 9.

Speaker 3

This is a truly remarkable milestone for us. The Article 9 stamp has a direct effect over our fundraising efforts, allowing us to access other pools of capital. Several investors from Europe and the U. S. Demand the highest from climate oriented funds before committing their capital.

Speaker 3

We are thrilled to be among these few funds. Moving on to VCP4, we also closed a few commitment towards the end of the year. The fund had a stellar semester. Adding up the Q3 closes with XP, we raised close to $1,000,000,000 over the last 6 months, mostly backed by local investors. VCP4 is officially the vintage within the VCP strategy, with the biggest absolute commitment coming from locals.

Speaker 3

This was crucial to the Fund's fundraising success and bodes well to allocation into future vintages. Now, let me provide some details regarding our fundraising targets for private market funds. As most of you know, during Investor Day, we updated our fundraising target to BRL15 1,000,000,000 until the year end 2024. And as Alessandro mentioned, this is a key area of focus for us this year. Since the beginning of the cycle in mid-twenty 22, We raised more than BRL8 1,000,000,000 for private market products, backed by products such as VCP4, We accomplished that facing a challenging worldwide scenario to raise capital for Kohl's and products.

Speaker 3

During this period, VINCI's This proprietary wide and diverse distribution capabilities was our greatest asset. With international investors pushing back to invest in clothes and private products, We leverage our local presence with LPs that exhibit strong appetite for these asset classes. Going forward, we have a robust pipeline for privates in 2024. First, we will work on final closings for VICC and VCP4. Via Cecilia is close to the targets, and we're experiencing traction with international investors that have shown strong appetite for climate related products.

Speaker 3

We should see final commitments coming over the next few quarters. For VCP 4, we will expand our efforts with international players. The size and timing of this final round of investment Will depend on these allocations. Based on recent interactions, we are seeing a more constructive environment than past quarters. We also work alongside ARIES to understand if there are LPs with whom we could work in partnership to boost this final round of commitments.

Speaker 3

Moving on to the next piece of the puzzle. As we discussed on our last earnings call and also during Investor Day, We will start fundraising for new vintages of additional strategies at some point during the 1st semester. The first will be VINCI SPS new vintage, SPS IV. We have started passing the waters over the last few weeks, and we are excited with the prospects for these To provide you with some updates regarding the strategy and illustrate the success of our Specialty Situations vertical, The first vintage raised in 2018 is marked today at a 26% gross IR. Towards the end of 2023, We successfully exited the fund's largest asset, originally a non performing loan acquired from a bank.

Speaker 3

We executed our collateral, a real estate asset, and concluded sale in the 4th quarter. The proceeds of that sale represent 40% of the Fund should achieve a 1.3 times DPI. Fund 2, launched in 2020, has anticipated its divestment period into 2023 and has already returned over 55% of total commitments to investors, underscoring the ongoing success of the strategy across all of its vintages. The last vintage of SPS strategy was raised in 2021 with more than BRL1 1,000,000,000 in That fund has already called 65% of the total capital commitments and allocated it across 20 assets. The Fund has exposure to 5 different sub strategies and hold a broad array of opportunity in pipeline to continue to deploy our capital in coming quarters, especially in legal claims, litigation finance and secondary corporate loan acquisitions.

Speaker 3

SPS raised its fund relying mostly on their We are seeing strong demand as we have been introducing the strategies to our LPs, especially when it comes to international investors. The second initiative we will start to fundraise in 2024 is VIR5, the 5th vintage in our impact and return strategy. The previous vintage raised BRL1 1,000,000,000 in 2020 and it's also performing well, already divesting from assets Lastly, we plan to launch the FDL 2, our 2nd vintage for our development strategy within real estate. We are working to divest from assets from the 1st vintage to enroll in fundraising conversations for the 2nd. Compared to the R5 and SPS IV, the FDL2 should come back to market on the second half of the year.

Speaker 3

To wrap up our fundraising prospects for private market products in 2024, we should see, First, new commitments for the VINCI credit infrastructure and our credit strategy coming from both local and international investors. We are active on this fund, mostly in 2022, having raised BRL1.4 billion We will continue fundraising for the strategies this year. And second, new offerings for the REITs. VISC was just the first of our funds to come back to market. We expect that with the scenario of lower interest rates, There will be an important window for new issuances for the public traded REITs.

Speaker 3

We currently have 7 of them waiting for the right timing. On a last note, it's worth mentioning that we are always looking for new product development opportunities, which could have come up throughout the year. To close my remarks, let me provide for an update for the liquid portion of our business. Throughout the Q4, we experienced the effect of mark to market appreciation, which is anticipated to result in a higher fee level as we move into However, we are still trailing to see some positive impacts from flows, both in IP and S and public equities. We do not expect any substantial inflows until nominal interest rates become more constructive at single digit levels.

Speaker 3

We still suffer from the trade off between still high overnight returns and the diversification into riskier asset classes. Another relevant effect, mostly on I P and S, is the real interest rate level. Last time, we were experiencing strong pickup We need real rates to stabilize at a level at least in the low 5s. Please note that we continue We show significant resilience in our liquids AUM. Several players suffered from huge redemptions throughout the last 2 years Envintra remains protected against a very negative market backdrop.

Speaker 3

We are reaping the benefits strategy that we adopted a long time ago, proprietary distribution channels with a close relationship with our clients. With that said, private markets should continue to set the tone in 2024 with liquids and IP and S being potential upside over the second half And 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 R119 $1,000,000 in the quarter, up 14% on an year over year basis. Management fees were flat on an year over year basis, yet They exhibit a positive growth trend going forward. Upon closer resignation, Property market management fees were up 11% year over year, backed by the strong fundraising over the last 12 months.

Speaker 4

This growth was partially offset by Liquid Strategies and IP and S. Both As previously mentioned by Bruno, we should see a pickup of the short term for liquid storage revenues, given the AUM appreciation occurred in the later part of the year. Moving on, Advisory fees were the main driver behind fee related revenues growth on an year over year basis. In recent years, our Corporate Adviser segment has been diligently engaged in refining the deal origination process, resulting in a diversified exposure across various sectors. This strategic initiative is designed Currently, M and A market is gaining momentum as market conditions improve.

Speaker 4

Our corporate advisory team successfully surpassed our BRL30 1,000,000 annual target for advisory revenues and we believe to be in a great position to repeat its success in 2024. Turning to FRE results. In the Q4, FRE totaled R57.3 million dollars or R1.07 dollars per share, representing a 14% year over year increase on a per share basis. Looking at the annual figures, FIE reached BRL208.4 million or BRL3.85 per share, UP 11% on a per share basis. FRE continues to grow, pushed by the strong fundraising of private markets products and a higher level of advisory fees.

Speaker 4

Regarding our investment in VRS, private markets comprises more than 60% Of Vince FRE in 2023, when he IPO ed the company in January 2021, Private Mark's last 12 months' FRE was BRL85.2 million and scale up to BRL134.1 million in 2023, showcasing a 57% increase. These numbers reflect the success of our ongoing efforts to scale our Private Markets business. This represents a high quality FRE growth, backed by long term lockups in AUM and a higher fee rate. When we discuss trends for FIE going forward, we should continue to post health numbers As we develop our fundraising pipeline in private markets, we expect new subscriptions coming over the next Few quarters for both VICC and VCP4 that will contribute via catch up effect, but also of new vintage with SPS IV and VIR V additional to the REITs and other funds that should boost FRE in 2024. Now, let me spend some time covering expenses.

Speaker 4

Margins remained stable on a full year basis. As we have been discussing over the past quarters, we were Actually, focus on cost consciousness in 2023, actively seeking efficiencies across the entire platform. It's important to mention that although inflation in 2023 was under control, The inflationary pressure on expenses last year reflected upon inflation levels from 2022. Our cost control proved its efficiencies, preventing a meaningful growth in G and A expenses. To finalize my remarks on expenses and margins, I would like to reinforce the following.

Speaker 4

We have Well developed platform ready to leverage growth. To illustrate with an example, Our real estate team concluded 2 consecutive offerings for our shopping mall REIT, VISCI, adding Roughly R1.2 billion dollars in perpetual AUM without adding hardly any costs. With that said, with a successful fundraising cycle for private markets products in 2024, aligned with a more Shifting to prior year results, performance fees remained at a relatively modest level, Influenced by the recent turbulence in global and local markets that has adversely affected portfolio appreciation. As Alessandro previously highlighted, there are positive signals of stability emerging in global markets, which bodes well for potential future performance recognition. Please note that we have approximately R17 $1,000,000,000 in performance eligible AUM across IP and S and Liquid Strategies.

Speaker 4

Covering our Private Market Funds, gross accrued performance fees reached close to R300 $1,000,000 in the 4th quarter. As we divest from assets and returning capital to our limited partners, we should see a significant impact Coming from this front, starting in late 2025. To wrap up, I would like to cover our Distributable earnings. Adjusted distributable earnings totaled R64 $1,000,000 in the Q4 of 2023 or Monreal and $0.18 per share, up 17% year over year on a per share basis, boosted by a combination of higher FIE and realized gains in our liquid portfolio. On an annual basis, adjusted distributable earnings totaled BRL246 1,000,000 or BRL4.54 per Flat on an year over year basis.

Speaker 4

It's important to note that VINCI has R1.1 billion dollars In proprietary capital commitments to Private Market Products, with approximately R400 $1,000,000 already called. The remaining capital commitment is invested in our liquid portfolio. We anticipate a more significant flow of this capital Into the private funds starting 2024 onwards, as the funds call for capital. This anticipated reduction in our liquid portfolio, combined with the expected easing cycle in Brazil, We'll have an impact to our financial income in 2024 when compared to 2023, in which we hadn't called Much of the capital from DGP commitments and interest rates were at the high of this cycle. Therefore, moving forward, we expect moderation in our realized financial income line, which should once again show strong contribution later in the cycle as commitments into private funds Our returns as realized GP income, we have talked about this effect at length during our Investor Day.

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

Thank you. We are now going to start the question and answer section. Our first question comes from William Bollingerard from Itau BBA.

Speaker 5

My question here is directed to REIT. So thinking about the fundraising scenario in 2024, Can you give us more color of when to expect new trenches, if it should be more concentrated in the first or the second half of the year? And then a second question here is still in the same topic and perhaps This is more regarding the 2025 outlook and onwards. So if the tax regulations for income tax For REITs, they change in Brazil. And from now on, investors need to pay taxes on the dividends [SPEAKER CANDIDO BOTELHO BRACHER:] Of the FEEs, the REITs.

Speaker 5

So I would like to understand how should this impact expected future fundraising and the attractiveness of the

Speaker 2

Okay, William. That's Alessandro. Thank you for your question. I will start with the timing of new issues on the REIT side. As we have several different REITs As taking the example of whiskey that we raised around BRL 1,000,000,000 in the end of 2023, It's difficult to predict exactly when we'll go back to the market with that.

Speaker 2

We normally go with one product At that time, of course, to concentrate the efforts of fundraising in one product at a time, but To expect that will be well distributed throughout the year. So we do not have a specific date or quarter Then that we expect more issuances, but of course, as the easing cycle develops, So the interest rates goes down. The appealing for these products for the general public will grow. So Normally, our expectation is that as the year progress and the interest rates continues to go down, we have more issues Towards the end of the year than the beginning because of the level of interest rates. And regarding your consideration about Change in terms of taxation of the fund.

Speaker 2

My personal view Is that, that will affect more people that will come into the market for the first time doing the first IPO of Fund, then follow on, the change in taxation of The rise in the bracket of tax will affect more the price of The REIT itself, not necessarily the fundraising going forward, that's my view. That could affect the market as a whole in terms of adapting The IRR net to the new taxation More than really affecting future fundraise that will be automatically adapt in terms of the yields That we will require for the seller when we are acquiring assets from the REIT. Okay. So what I'm trying to say is that the cost of capital for the overall market in real estate will go up If there is the case of a change in the taxation for this product.

Operator

Our next question comes from Ricardo Buckpiguel from BTG Pactual. Please, Mr. Buckpiguel, your microphone is open.

Speaker 6

Hello, everyone. I have 2 topics I wanted to ask. First, we saw a very good recovery in terms of public equities net inflows. You guys reached the very important mark of BRL1 1,000,000,000 in inflows and that during an environment where interest rates were very high. So I wanted to understand if it makes sense to expect this BRL1 1,000,000,000 in inflows as a floor and progressively improve over the next quarter?

Speaker 6

Or should it be Kind of a one off and mainly in the second half of the year, we should see kind of Higher numbers, more towards the 1,000,000,000 in the public equity side. And also, I wanted to understand a bit that Despite the very strong advisory fees that you register in Q4, reaching almost BRL20 1,000,000 in top line, I wanted to understand what should be a more recurring level for the advisory business going forward, especially in 2024? Thank you.

Speaker 3

Okay, Ricardo. Thanks for the question. This is Bruno. So in regards to equities, we actually saw in 'twenty three kind of Flattish inflow environment was actually a little bit positive, but it wasn't very material. What we did have in the Q4 Was a material appreciation impact in the AUM.

Speaker 3

So thinking about the inflows, The situation is kind of stable at this point at least. We're still seeing kind of stable Equities inflows, IP and S continues to be a little bit down. It's the same environment That we saw in the last several quarters with equity is kind of stable and IPNS in terms of flows a little bit down. So as we mentioned during the call, we expect this to turn at some point in the second half, likely With nominal interest rates reaching a number close to single digits, we believe that could be an important trigger. And historically, when you look at our performance in the past, When that happens, usually we see very strong flows in both equities and IP and S.

Speaker 3

So hopefully this is a second half Events for us that will allow us to start growing those businesses a bit Quicker. But the appreciation impact last year was relevant when you combine equities with IP and S. And I think Alessandro

Speaker 7

[SPEAKER CANDIDO BOTELHO BRACHER:]

Speaker 2

Thank you, Ricardo. I think regarding your question, It's a very good question indeed about revenues coming from advisory. We have been discussing and what we are seeing now is that really our advisor business Change in terms of the level of recurrent fees. I think during these last few years, we have been seeing Very, very repeated clients and a lot of reference from Former clients, so I think our franchise, of course, being a very straightforward execution franchise, especially On the M and A side, but we have been able to capture some additional market share In this whole M and A market, so our expectation is that our recurrent fees Regarding advisory, we will really reach a new level. So I think we could take an average Of what we did in 2023 and take in consideration that we really changed the Creation of our franchise that due to the pipeline that we currently have in future and current mandates Where we believe that will materialize in revenues in the future quarters.

Speaker 6

Very clear. And given what you mentioned in terms of the inflows For liquids, all the private market fundraising you have and this improvement in the advisory business, Does it make sense to think about an FRE growth of around 15% for this year, more or less?

Speaker 3

Ricardo, I think, I mean, when you look at when we look at our internal budgets, we are Positive for the year 2024 if everything goes well and because we have several different opportunities to grow the business. I think double digit growth certainly is possible given all the things that we have at our table at this point.

Speaker 6

Great. Thank you.

Operator

Our next question comes from Ms. Beatriz Abreu from Goldman Sachs. Please, Ms. Abreu, your microphone is open.

Speaker 8

Hi, Alessandro, Bruno and Sergio. Good evening and thank you for taking my question. I have two questions, if I may. The first question is regarding fee related expenses for VRS. So you had a significant increase in expenses For the segment in the Q4, my question is how much more do you expect to invest in this segment?

Speaker 8

And what kind of expenses Are there more to do? Is it in terms of personnel or related to the product itself? Also, do you still expect VRS to breakeven this year given the pace it's been evolving. And my second question is regarding your M and A strategy. If Can you give us more color on how you're thinking about potential M and A and inorganic growth, especially given the recent investment that you got from ARRIS?

Speaker 8

Those will be my questions. Thank you very much.

Speaker 2

Hi, Beatriz. Thank you for your question. That's Alessandro. In terms of your ARS, what started to happen in the last quarter of the year is that we started to amortize Part of the I would say the investment or the especially in technology. So I think that was the Q1 That we have this effect.

Speaker 2

So since the beginning of the project, we started investing and have running costs. And on this last quarter, we started from most We do not expect to invest more. I think the platform is evolving. We are seeing a very good, I would say outlook for VRS. So I personally believe that we probably end of this year, We will have a running rate that could be already on the breakeven side.

Speaker 2

So 20 24 is an important year for VRS for different reasons, but especially all these changes on the tax System in Brazil, it's benefit a lot, the retirement type of products, as you know. So we are very, very optimistic about that. And so at the end of the year, we believe that we could be reaching something near The breakeven and the investments is exactly what I explained to you. Concerning The M and A side, we continue to be very, very active on the M and A and things are Developing, we have 2 main, I would say, paths in terms of M and A that we are Right now, one is our international expansion, especially for Latin America. So we are currently analyzing as We told you in the last few quarters a few opportunities.

Speaker 2

And at the same time, we are looking For asset managers, especially that are focusing just one asset class, Normally that we have a presence or a very small presence or a reasonable presence that could add not just a WAM, But also capability to our platform. We have a pipeline that's strong on that sense. And we believe that we will probably have some of these Deals that we analyze concluded in the near future.

Operator

Our next question comes from Leandro Lechi from UBS. Please, Mr. Leandro, your microphone is open.

Speaker 7

Good evening, everyone. Congrats on the results and thank you for the call. My question, perhaps the more qualitative one, is regarding the interactions with the ARRIS team. You already talked about A bit on the new vintage in the SPS 4, but if you please could talk about how conversations are going,

Speaker 3

This is Bruno. The Ares partnership so far has been excellent. I think we're making progress in several different fronts. This week, we have several of our people In the United States, visiting the offices of areas, we had just to give you some examples, we had Caso Duardo, the Co Head of Private Equity, he went to the Los Angeles headquarters of ARIES. We had Marcelo Mifano, The head of our SPS Special Situations unit also in Los Angeles, Pedro Quintella, who runs our international distribution business, Was in both offices, New York and Los Angeles.

Speaker 3

So we are really very engaged with them, Talking about all of the potential opportunities for us to develop with them, there are certainly some That are more meaningful and have more potential impact in the short term. We are working with the team there to find Which would be the more interesting products for us to represent them in Brazil across our investor base. So there are several interesting products that we can show to our investor base in Brazil that people that want to allocate both institutions and High net worth individuals that want to allocate capital outside of the country. There is obviously the opportunity for us to work alongside with them on Improving the relationship with common LPs and perhaps some LPs that they have that might have interest in strategies in Latin America with whom we can discuss allocation to our products. And finally, there is a very strong effort to originate opportunities to invest together.

Speaker 3

So we have a pipeline in infrastructure, private equity, special situations, credit, Well, we feel there is fit for ARIES to co invest with us. We're starting to analyze that opportunity. And hopefully, by the end of the year, We're going to have 1 or 2 of those opportunities turning into real coinvestment Situation. So it's a very broad conversation. The interactions there are More above our eyes and the teams are getting to know each other and that's probably going to speed up the opportunity set for us and for the partnership.

Speaker 3

But we're extremely happy with what we have been able to accomplish with them so far. So Things are looking very promising for the next few years.

Speaker 7

That's great. Thank you, Bruno.

Operator

Our next question comes from Guilherme Grisbon from JPMorgan. Please Mr. Guilherme, your microphone is open.

Speaker 9

Thank you so much, Alessandro Bruin and Sergio. Two questions on our side. The first one is IP and S. If you can remind us a little bit what we should expect going forward in terms of outflows. Specifically, just remind us If this is a specific client or if it's a broader outflow related to the pension given interest rates, etcetera, just to [SPEAKER PIERRE YVES LESAICHERRE:] And the second question is related to performance fees.

Speaker 9

Basically on the two sides, First Equities, if you can remind us how far you are from the cat From the watermarks on the funds, and if you believe can be a relevant driver of performance going forward. And on the private side, we noticed a pretty strong unrealized adjustment. I think it was 40% growth in the unrealized performance fees. The question is basically if there was any specific event or basically what drove this increase? Thank you.

Speaker 2

Okay. Thank you very much. And that's Alessandro. I'll start with IP and S. IP and S, the outflows is concentrated more on the clients that distribute through retail, Through our allocators and distributors channel and this is more related with the high And the outflows, our suspicion that some of them went to Tax exempt CDs incentivized by this tax issues that recently the government Closed some doors, but this is not an specific client, not necessarily pensions, but more retail products that we have In our AP and S strategy, regarding equities to your question, we are Close, very close on the majority of the funds to the high watermarks.

Speaker 2

So yes, We could expect that to be a more relevant driver in terms of performance going forward if the market continues to behave appropriately. And finally, the unrealized number is related to a mark to market to our VCP 3 fund where it's a relevant fund and there's we had the recent Re evaluation of the portfolio and that translated in uptick in the marks that of Of course, on the end translate in a more higher expected unrealized performance numbers.

Speaker 9

Okay, super clear. Thank you, Alessandro.

Operator

Thank you. I would now like to turn the floor back to Mr. Alessandro Orta for the closing remarks. Please, Mr. Arto, you can proceed.

Operator

[SPEAKER JOSE MARIA ALVAREZ ALVAREZ:]

Speaker 2

So I would like to thank you again Thank you for your continued support and interest. We believe that 2024 will be a very important year where we'll I expect to accelerate our growth, while again showing our resilient and well constructed business model. So thank you again and have a good night to you all.

Operator

This does conclude today's presentation. We thank you all for your participation and wish you a very good evening.

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Key Takeaways

  • DaVinci Partners delivered strong Q4 results with fee related earnings (FRE) of R$57.3 million (+14% y/y) and full-year FRE of R$208.4 million, declaring a quarterly dividend of US$0.20/share.
  • The firm ended 2023 with R$69 billion in AUM and R$4 billion in capital subscriptions, highlighted by its shopping mall REIT VISQ raising over R$1 billion in three months and securing the R$1 billion FIDIRS infrastructure mandate.
  • DaVinci formalized a strategic partnership with Ares to share best practices, pursue co-investment opportunities and distribute Ares products in Brazil.
  • The newly launched VRS retirement platform is now publicly accessible via apps and web, targeting high-net-worth and corporate pension markets with an aim to reach breakeven by year-end 2024 amid favorable tax changes.
  • Private markets fundraising is on track to hit a R$15 billion target by end-2024, having already raised R$8 billion, with key closings for VCP4 and VICC and new vintages (SPS IV, VRI V) plus follow-on REIT offerings planned.
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Earnings Conference Call
Vinci Partners Investments Q4 2023
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