Patria Investments Limited (PAX) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Patria's First Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Rob Lee, Head of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to Patria's First Quarter 2025 Earnings Call. Speaking today on the call are our Chief Executive Officer, Alex Saigh; and our Chief Financial Officer, Ana Russo; and our Chief Economist, Luis Fernando Lopes, for the Q&A session. This morning, we issued a press release and earnings presentation detailing our results for the quarter, which you can find posted on the Investor Relations section of our website or on Form 6-K filed with the Securities and Exchange Commission. This call is being webcast, and a replay will be available. Before we begin, I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain, do not guarantee future performance and undue reliance should not be placed on them. Patria assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve risks, including those discussed in the Risk Factors section of our latest Form 20-F annual report. Also note, that no statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any Patria fund. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards, or IFRS, as opposed to U.S. GAAP. Additionally, we would like to remind everyone that we will refer to certain non-IFRS measures, which we believe are relevant in assessing the financial performance of the business, but which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable IFRS measures are included in our earnings presentation. Now I will turn the call over to Alex. Alex?

Thank you, Rob, and good morning, everyone. 2025 is off to a very exciting start as fundraising totaled a record $3.2 billion, highlighting the expanded reach of our investment platforms and distribution capabilities, and putting us well on the way to achieving our $6 billion fundraising target for the year. This record fundraising benefited from the signing of several large customized investment accounts and SMAs, special managed accounts, emblematic of how we evolved from a product-centric asset manager to becoming a solutions provider for our investors. We also reported first quarter '25 fee-related earnings, or FRE, of $42.6 million or $0.27 per share, representing 21% and 16% year-over-year growth, respectively, despite rising global uncertainty. Fee-earning AUM grew 6% sequentially and 46% year-over-year. Most notably, we generated over $700 million of organic net inflows into fee-earning AUM in the first quarter '25, reflecting an annualized organic growth rate of over 8.6%. This is an important KPI to monitor over time as it highlights our ability to drive organic revenue and earnings growth independent of M&A and investment returns. As we highlighted at our recent Investor Day on December 9, our increased diversification and the expansion of our investment and product capabilities is paying off in the form of robust fundraising and profitable net organic growth. In addition, fee-earning AUM growth and management fee revenues benefit from the over 60% proportion of our assets, which earn fees based on net asset value and/or market value compared to below 10% at the time of our IPO, and which provides the opportunity for long-term compounding. All of the above reinforces our confidence in the 3-year targets we introduced at the event. Now let me quickly summarize our first quarter results before we move on to some of the other highlights for the quarter. First, as we just noted, FRE per share of $0.27 in the first quarter '25 rose 16% year-over-year, driven by higher management fees due to higher fee-earning AUM. The sequential decrease of 22% mainly reflects the expected seasonal decline in incentive fees, which totaled $12 million in the fourth quarter '24. Overall, we remain comfortable with our 2025 FRE per share guidance of $1.25 to $1.50 reflecting, at the midpoint of the range, approximately 20% year-over-year growth. We generated $37 million of distributable earnings in the first quarter of '25 or $0.23 per share, up 12% year-over-year, driven by strong FRE growth. Performance-related earnings were the de minimis in the quarter. However, the net accrued performance fee balance of $368 million or $2.33 per share rose 15% in the quarter, mainly due to the depreciation of the dollar, partially offset by declines in publicly listed portfolio companies within private equity. For perspective and notwithstanding changes in the value of the public holdings in our carry funds, underlying business trends at our private equity portfolio companies generally remain positive. In local currency terms, EBITDA at our non-public PE portfolio companies rose approximately 15% on average in 2024 as we focus on resilient sectors of the economy such as agribusiness, food and beverage and health care. Furthermore, Infrastructure III with $53 million of net accrued performance fees remains in catch-up, and we expect it will be the main source of realized performance-related earnings over the year. Assets under management of $46 billion grew 43% year-over-year and over 9% sequentially, with a sequential growth driven by the record quarterly fundraising of $3.2 billion and positive impacts from investment returns and FX. Moving on, fee-earning AUM of $35 billion rose a robust 46% year-over-year and 6% sequentially. There are several important things to keep in mind regarding our fee-earning AUM results. There were no acquisitions in the quarter and net organic inflows in the first quarter '25 were above $700 million, representing an 8.6% annualized organic growth rate. This was our second straight quarter of positive net organic fee-earning AUM growth, and we believe it highlights how our expanded platform is primed to grow organically, supported by the capabilities we have acquired through our M&A activity in addition to those we have developed internally. As a result, we have built a better and more resilient business. Fee-earning AUM in the quarter also benefited from continued strong investment returns and a positive FX impact. Keep in mind that, as we highlighted at Investor Day, the FRE impact from soft currency FX volatility is modest given that most of our expense base is denominated in local currency, providing a substantial natural hedge. We estimate that for every 10% change in soft currencies, our fee-related earnings impact is approximately 2%. Finally, as we highlighted in the earnings presentation, investment performance remains strong, particularly within credit. It is worth keeping in mind that even though many of our strategies are U.S. dollar or hard currency denominated, local currency returns are increasingly important as, over time, we expect to source more assets from local investors to invest in local strategies. Moving on to fundraising. As I noted at the start of my remarks, we are very excited to report that we raised $3.2 billion in the first quarter of 2025 and $7.4 billion over the last 12 months, both a records for Patria. The quarter's outstanding results highlight the diversified product offering and distribution capabilities of the platform we have been building. Fundraising included a mix of customized investment accounts; SMA, special managed accounts; and other fund structures, including drawdown funds, permanent capital listed vehicles and interval funds, all spread across a variety of asset classes. As of the end of the first quarter of 2025, approximately 20% of our fee-earning AUM were in permanent capital vehicles, the growth of which remains a key long-term objective. Drilling down into some of the fundraising highlights for the quarter, we continue to see strong demand from Asian sovereign wealth fund investors, and we closed on approximately $1 billion of commitments from these investors in customized investment accounts and SMAs, special managed accounts, that will be invested in or in conjunction with our current vintage private equity buyout and infrastructure development funds. The quarter amply demonstrated the expertise we have developed in crafting customized solutions for our investors, and we continue to work on additional mandates for these strategies. We hope to have more news to share over the coming quarters. Within GPMS, we raised over $620 million in a new special managed account in addition to normal course fundraising in our commingled vehicles and other special managed accounts. We also continue to see significant momentum across our credit platform, led by our flagship U.S. dollar high-yield credit fund. Regarding real estate, while high interest rates in Brazil have impacted demand for many of our listed REITs, we see a selected opportunity to raise capital on the floor of the exchange through M&A and consolidation, as well as through credit-oriented REIT strategies. It's important to keep in mind that a significant portion of the capital we raised in the quarter is customized accounts, SMAs, and other products will flow into fee-earning AUM as capital is deployed, and our current pending fee-earning AUM totals about $3.5 billion. Also, we will earn fees on most of the co-investment capital sourced through the customized accounts and SMAs once deployed. Of course, while we are excited about our robust fundraising this quarter and believe we are comfortably on track to hit our $6 billion target for the year, it is important to note that the first quarter benefited from the closing of several large SMAs and customized accounts that we have been working on for some time. While we continue to work on other customized solutions across the platform, in addition to our normal fundraising, the timing of when large and complex customized investment contracts will close is very difficult to predict. With that, we caution against extrapolating the extraordinary fundraising success in the first quarter across the entire year as a new level of quarterly fundraising. Our efforts to diversify our platform and increase the resiliency of our business could not be timelier, considering the highlighted global macro uncertainty and increased volatility that has gripped economies and markets around the world since the proposed imposition of widespread tariffs by the U.S. on its trading partners and uncertainty over future trade and economic policies. Against this backdrop, it's important for investors to understand and appreciate how the region in general and Patria is specifically positioned in these uncertain times. In a nutshell, while it's possible that increased economic uncertainty and volatility could have a dampening impact on investors' willingness to commit capital to new investments in the short run, we believe Latin America is becoming a more attractive destination for capital even as our locally focused and diversified business model enhances our resilience. While much uncertainty remains and the potential for a global recession creates challenges and headwinds, we believe the region and Patria are positioned to weather and indeed possibly thrive in these challenging conditions. Consider that. Save for Mexico, where our current exposure is minimal at below 3% of AUM, the region is less exposed to potential tariffs and initially faced lower effective tariffs than other regions. Long-term, however, we believe Mexico remains an attractive potential market for expansion. As the trade war between the U.S., China and other countries escalates, we believe Latin America as a region is a beneficiary given the region's low level of geopolitical risk and export markets that focus on in-demand agricultural products in addition to both hard and soft commodities. With a population of over 650 million people and a combined GDP of over $6.5 trillion, the region also has large and growing internal markets that provide an attractive export destination for trading partners. As evidence of these attributes, China is already Brazil's largest trading partner and the largest in the region when excluding Mexico. Also, the European Union and MERCOSUR, a regional consortium of countries, including Brazil and Argentina, recently signed a trade agreement after nearly 20 years of negotiation, spurred on, we believe, by the pending imposition of tariffs and increased uncertainty out of the U.S. The region's relative attractiveness as a destination for investment can also be seen as it captures the growing market share of foreign direct investments, which the United Nations Trade and Development Organization estimates, reached 14.5% in 2023, more than 3x the 4% in 1990, which represents the beginning of the data series, making Latin America one of the few regions to record a pickup in market share. From Patria's perspective, as investors in the region with over 36 years with significant boots-on-the-ground resources, we have extensive experience in dealing with and investing through periods of high interest rates, FX volatility and economic uncertainty. At the strategy or investment level, our private equity investments are mostly oriented toward domestic consumption markets, not export markets. Infrastructure by its nature is local, and our GPMS solutions business is focused on European and to a lesser extent, U.S., middle market PE secondaries, primaries and co-investments. Direct exposure to export-focused businesses and/or investments in the U.S. is minimal. Our position within Latin America as the go-to alternative manager for global investors looking to invest in the region is best evidenced by the customized investment accounts we completed in the first quarter with several Asian sovereign wealth funds. While this interest preceded the recent tariff-induced economic uncertainty, we believe recent trade actions by the U.S. have led to early signs of increased interest from Asian, Middle Eastern and increasingly European investors in our infrastructure and other strategies, including our European solutions business, as investors seek alternative destinations outside the U.S. to deploy capital and earn returns. Also, the potential for the denominator effect to once again rear its head as well as the prospect for lower DPIs in the global PE industry should also benefit our solutions business, particularly our secondaries strategies. Our business is also built to serve local investors and at the local level. We continue to see early signs of increased allocations to alternatives from local investors and institutions that are both under-allocated to alternative strategies and are often required to invest locally and understandably have a home country bias in times of economic stress and uncertainty. Local investors in LatAm accounted for approximately 17% of our fundraising in the first quarter '25 and over 40% in 2024, and we believe the current uncertainty is also supportive of demand for our European solutions business. Last, but not least, economically, our fee-earning AUM and management fees are very sticky and highly predictable as approximately 20% of our fee-earning AUM are in permanent capital vehicles and approximately 90% in vehicles with no or limited redemption features. At the same time, our FRE has little sensitivity to both currency FX volatility, as we mentioned earlier. Pulling this all together, our financial results and strong fundraising provide additional evidence that our strategy to diversify and grow our business both organically and inorganically, while also increasing our resilience, is paying off in the form of better organic growth and growing FRE. It's been only 4 years since our IPO. But as we highlighted at our Investor Day, which is available on our website, over that brief period, we have greatly expanded our regional and global investor base and distribution capabilities and we have significantly diversified our investment strategies and product offering. In addition to consistently achieving or beating virtually all of the objectives we set for ourselves since the time of our IPO, we believe we are off to a strong start to deliver on the new fundraising, fee-related earnings and other targets we unveiled at our recent Investor Day. Now, let me turn the call over to Ana to review our financial results in more detail. Thank you.

Thank you, Alex, and good morning, everyone. As Alex mentioned, 2025 is off to a very exciting start as the expanded reach of our investment platforms and products and distribution capabilities helped us raise $3.2 billion in the first quarter, a quarterly record. Strong results in the quarter increases our confidence that we are on track to achieve our 2025 objectives. Let's review our first quarter results. As Alex highlighted earlier, we are very pleased with our fundraising in the quarter and believe we are well on track to achieve our $6 billion target for the year against a backdrop of increased global uncertainty and volatility. Our fee AUM grew 46% year-over-year and 6% sequentially to approximately $35 billion, while acquisitions drove most of the year-over-year increase. The strong sequential growth reflects the combination of solid net organic inflows as well as positive contribution from investment performance and FX movements due to the depreciating U.S. dollar. As a result of the U.S. dollar depreciation in the quarter, fee-earning AUM recouped approximately half of the negative FX impact in the fourth quarter 2024. More importantly, however, and as we highlighted in prior calls, FX fluctuation has limited impact on our FRE since our expense base provides a substantial hedge against currency movements that may impact our fee-earning AUM and consequently, our fee revenues. As reviewed at our Investor Day back on December 9, based on our current asset class mix, a 10% variance in soft currencies against the dollar impacts FRE by only about 2%. It's particularly noteworthy that in the quarter, Patria generated approximately $700 million of net inflows into AUM for an 8.6% annualized organic growth rate. Since the end of the third quarter of '24, Patria has generated about $1 billion of organic net inflows, highlighting the organic growth potential of our expanded platform. Of note, we reintroduced our pending fee-earning AUM KPI, which highlights that we have almost $3.5 billion of already committed capital that should turn into fee-earning AUM as the capital is deployed. For comparative purpose, this KPI was approximately $2 billion at year-end 2024. The expanding fee-earning AUM, combined with our fundraising goals, the 20% of fee-earning AUM that are in permanent capital vehicles and the 35% of fee-earning AUM in drawdown funds with average life of 6.5 years, all point to our ability to generate net organic growth over time. Total fee revenue in the first quarter reached $77.3 million, up 28% over the prior year, about a $17 million increase, driven in large part by the full impact of our acquisitions completed in 2024; incremental inflows mainly into credit, partially offset by Private Equity IV, which ceased charging fees. It is worth mentioning that due to timing of net asset flows into fee-earning AUM, management fee revenues in the first quarter did not reflect the full impact of the quarter's asset growth. First quarter '25 fee revenue decreased 17% versus prior quarter, primarily due to year-end seasonal incentive fees of about $12 million, in addition to retroactive management fees of approximately $2.7 million that were recognized in the fourth quarter, compared to just $0.3 million that were recognized in the first quarter. Excluding the impact of retro fees, management fee revenue was essentially flat sequentially. We currently expect retro fees to be at least $1 million in the second quarter 2025. Our management fee rate averaged about 96 basis points for the last 12 months. As we reviewed at our Investor Day, we are steadily diversifying our business and introducing new investment strategies and product structures, which are key drivers of our growth. Consequently, our management fee rate will continue to evolve, and we expect our fee rate over the coming years to trend towards approximately 90 basis points, but can vary substantially from quarter to quarter depending on mix. Moving on, operating expenses, which include personnel and G&A expenses totaling approximately $35 million in the quarter were up 36% versus Q1 2024 or $9.3 million. About 75% of this increase reflects the impact of acquisitions with the balance driven by continued investment of our business. The sequential decline reflects a combination of the seasonal effect of both our bonus of personnel costs as well as seasonality in G&A expenses. Looking ahead, we believe the first quarter personnel and G&A expenses combined are a good baseline run rate. Putting it all together, Patria delivered fee-related earnings of $42.6 million in the quarter, up 21% versus prior year with an FRE margin of 55%. We continue to expect the full year margin to fall within the range of our 58% to 60% guidance as we grow fee revenues and capture incremental expense synergy from our acquisitions. Overall, given the strong start to the year, we remain confident in our fundraising target of $6 billion and our ability to achieve our FRE target of $200 million to $225 million. Next, our net financial and other income and expense in Q1 '25 totaled a negative $2.8 million, reflecting mainly interest expense on our credit facilities, partially offset by income generated in our new energy trading platform, Tria, which contributed at $1.1 million in the quarter. As of the first quarter, net debt totaled approximately $143 million compared to $190 million at year-end. Our net debt to FRE ratio was well below 1x at the end of the quarter, in line with our long-term guidance. Our effective tax rate in the quarter was 9.2%, an increase of 5.5 percentage points versus the prior quarter, mainly reflecting the impact of performance fees of our Q4 2024 tax rate and our mix of jurisdictions. We continue to expect our tax rate to trend towards 10% at the end of our 3-year target period in 2027, given our evolving business mix and new platforms located in higher tax jurisdictions. In Q1 2025, we generated $37 million of distributable earnings, up almost 17% year-over-year, reflecting higher FRE, partially offset by higher net financial interest expense, while the sequential decline reflects the impact of both performance fees and incentive fees of fourth quarter '24 results. First quarter DE per share of $0.23 was up 12% versus the prior year on higher FRE, partially offset by a higher share count and a slightly higher tax rate and financial income. Regarding the share count, we finished the quarter at 158 million shares and continue to expect the share count to average between 158 million and 160 million from 2025 through 2027, inclusive of share repurchase, which will be focused on offsetting stock-based compensation. Finally, as we announced during our Tax Day, the Board approved for 2025 a quarterly dividend per share of $0.15. With regards to our share repurchase program, we did not repurchase shares in the quarter, but it remains our intention to repurchase shares over the course of the 2025. Overall, we are very pleased with our first quarter results and the momentum we have built as we continue to diversify and improve the resilience of our business. We believe we are on track to meet our FRE targets for 2025, and we are excited regarding the growth opportunity that lies ahead. Thank you, everyone, for dialing in, and we are now ready to answer your questions.

[Operator Instructions]. Our first question is going to come from the line of Craig Siegenthaler with Bank of America.

My question is on the macro side. The trade conflicts should be a positive for LatAm in Brazil, encouraging more FDI. How are your portfolios positioned from higher tariffs in the U.S. and some of its largest trade partners, including China?

Thank you, Craig. Nice speaking with you. This is Alex here, and thanks for your presence here in this call. Well, if we break it down, I think most of our investments are LatAm-oriented. So within Latin America, our exposure to Mexico is minimum, less than 3%, 1% to 3%. So most of our exposure, when I say Latin America, is basically South America. And there, I think our investments are pretty much local in sectors that we think are very resilient and locally driven like health care, food and beverage; and on the infrastructure side, it's very local by nature, toll roads, et cetera. And our exposure to companies through our credit portfolio, very local as well, as I mentioned, less than 3% Mexico. And when I go to real estate, it's even more local. It has all to do with the local drivers of countries like Brazil, like Chile, Colombia, et cetera. So, in general, I think that our exposure to this whole tariff war is relatively low. As you know, the region is in the group of the 10% tariffs, which is the lower end of the spectrum of the tariffs that was imposed by the U.S. On the other side of this equation here, I definitely think that the region will be benefited if this trade war continues as it is. As you know, it changes every half an hour, but if it continues, where the region will be tariff at the 10% level and the other regions of the world with higher tariffs, I think that region will benefit because it's a huge consumption market. A large part of the GDPs of these countries are composed by local consumption, the C of the GDP formula; and these trading partners, our trading partners will look into the region as a place to actually sell their products, China being, I think, the largest trading partner in the region, excluding Mexico. And lastly, I think even if the whole tariff debacle goes back to square one, in my humble opinion here, I think there was a credibility shakeup with the current U.S. leadership that I think that investors around the world will look for other places to invest besides the U.S. When we were talking to investors during 2023 and '24, and even the later part of '24, there was a big push towards U.S. investments, U.S. equities and whatever. And when I talk to investors now, I think there's a big push outside of the U.S. And as I mentioned, it's just my personal opinion, even if the tariff debacle goes back to square one, I think there was a credibility shock here and investors will look for other places to invest; and Latin America, I think, is a very, very interesting region, low geopolitical risks, et cetera. So, 3 parts of my answer here. Number one, a straight answer to your question: I don't think our portfolio will be negatively affected by the tariffs. Of course, if there's a global recession or whatever, everything moves in the wrong direction. But as we see it now, I think it's a low-risk portfolio as far as the effects of the tariffs are concerned. Second, I think investors our region will be benefit because we are in the low tariff bracket and investors see this very, very large consumption market to sell products into. And lastly, I think investors will invest more in the region. I gave an FDI figure here for 2024, the region represented 14.3% of all the FDI versus 4% in 1990. So basically, 3x more or even more than that in market share. And I think that's going to increase as we look into the near future. I hope I answered your question, Craig.

No, that was great, Alex. Just for my follow-up, and we can stick with the trade war topic, but move on to the fundraising front. There has been some news that Chinese institutions will be divesting from U.S. private markets. Could this open the door for Patria if they divert their private markets allocations from U.S. to LatAm and Brazil specifically? We're just curious how your LP meetings and calls have gone since April 2?

The answer is yes. And I think this conversation was already happening last year. I think the Chinese investors specifically were already anticipating a potential Mr. Trump winning the election, the U.S. election as President. So they were already taking steps in the direction of reducing their U.S. exposure. And having us sign $1 billion of SMAs, which is, for us, a very large amount in the first quarter of 2025 is a reflection of that. And these negotiations were going on during 2024 when Mr. Trump was not the U.S. President yet. So I think it's going to continue to drive in this direction. Our conversations after April 2 really intensified that. We learned from our Asian, and not only Asian, but also [indiscernible] in some European investors a concern and continue allocating to U.S. alternative asset managers for geopolitical reasons, going all the way to we might have our accounts frozen and blah, blah, blah. So all the way from a small amount of precaution to all the way down to the red zone of what happens if this and this and this. And we are completely out of this, right? And all of our fund structures they do not flow through the U.S., they flow through other jurisdictions. We are not a U.S. company. We are a Cayman-based company, which has no U.S. jurisdictions influence there, et cetera, et cetera, et cetera. So I think besides being in a part of the world that I think will benefit from this geopolitical confusion, uncertainty, specifically for Patria, we are structured and designed as a non-U.S. company. We were always like that. And I think this will definitely benefit us in this very uncertain world. And we already had these kinds of conversations with our investors after April 2. I hope I answered your question.

[Operator Instructions]. Our next question is going to come from the line of Tito Labarta with Goldman Sachs.

My question is also on the fundraising. But I think you mentioned that you didn't really see any impact yet from the noise around tariffs given in the first quarter where we saw a very good fundraising. But just thinking about the outlook from here, you're already more than halfway to your target of $6 billion for the year. So given this uncertainty with tariffs, potential more interest in LatAm, do you see potential upside to that $6 billion in fundraising for the full year? Or was there anything extraordinary in the quarter that maybe is not recurring?

Well, thanks for the question, Tito. It's nice talking to you. Thanks for participating in this call. We're keeping -- I think, straight answer to your question, then I'll expand. I think we're keeping the $6 billion target. We had a great first quarter, but I caution like $3.2 billion times 4, that's -- I think that's a very aggressive number. So we're keeping the $6 billion target. However, as I see it today, we're a little bit over halfway through, which is a very good position to be in. So I feel very comfortable and the team feels very comfortable that we're going to actually hit our $6 billion target, which for us is an amazing number, right? When we gave out the number, $21 billion for the next 3 years, $6 billion this year, $7 billion next year, $8 billion in '27 during our Investor Day, December 9, 2024. $21 billion for us in 3 years, $6 billion this year, it's a very, very substantial number given our size. And we are already over $3 billion in the first quarter. And more so, I think we did raise through that $3.2 billion, $700 million in fee-paying AUM in the quarter of net new money. So you see the strategy being paid off. And I'm not even counting the valuation increases in the $700 million, I'm not counting the valuation increases, and we charge on NAV. So we started with a -- in 2024 with a net new money of around $380 million for the whole year, and then we have $700 million of net new money in the fee-paying AUM account in the first quarter. So again, no, it's extremely good fundraising, very strong fundraising. I know that April 2 was after the end of the first quarter. However, I don't think that all of these Asian investors and sovereign funds would have signed all these SMAs with us in the first quarter of 2025 because the whole uncertainty on the tariffs were already there, even though April 2 was after the end of the quarter, but they would have cautiously said, "Look, Alex, let me sign this during the second quarter to see what's going to happen." And they didn't. And they didn't actually, if I go back to Craig's question in 2024, stop these conversations. On the contrary, they are actually pushing on these conversations to expose themselves more to LatAm. And a tiny move on their side is a huge effect for us, right? What is $1 billion or $2 billion for these Asian sovereign funds, it's nothing for them. And for us, $1 billion, $2 billion, $3 billion is half of what we have to fund raise for the year, right? So anything that we -- and we are the largest alternative asset manager in the region. And in my view, of course, I have a bias view, the most better positioned to take on this additional flow of money in infrastructure, in credit, in private equity, whatever. But first, these 2 SMAs will drive money into our infrastructure and private equity flagship funds or vintages. However, the conversations with these investors are much more broader. As we go into the year, you might be hearing news from us from other kinds of SMAs like managing assets that they already have on the ground in Latin America. Them investing on the credit side. There's so many ideas that is going on. I think the conversation changed dramatically to the better, Tito. And us being there, I think investing in the region, I mean, in Asia for so many years, we opened an office in Hong Kong 8 years ago. We opened an office in Dubai, actually, in the first investment we had was in our 97 Fund 1 vintage from KIO, the Kuwait Investment Authority. So we've been there in the region. So being there in the right place at the right time and being the largest in the region here in LatAm, we have now been able to maximize those investments and taking advantage of it. And you can see the numbers already there in the first quarter, Tito. I think we're going to be talking a lot more about this during the rest of 2025, where we're going to be announcing other SMAs and other relationships of this sort. I hope I answered your question.

Yes. No, that is very helpful, Alex. Maybe, I guess, just on the follow-up. Conversely, if you look at the fee-related earnings, if you just analyze it and even considering some incentive fees in 4Q, you are running a bit below the $225 million guidance. So just does the jump in the fee-earning AUM that we saw this quarter should that already begin to benefit in 2Q? Will that be more for 3Q and 4Q? And along those lines, I mean, do you expect a jump in that fee-related earnings to get closer to the trend to deliver on the guidance for the full year?

Yes. I think, yes, we see everything that you just mentioned. And if I do a straight math here, I think we are right on target to deliver the middle of the guidance. And I think we can do better than that, but just a very simple math, the fee-related earnings for us for the first quarter of 2025 was $42.6 million, as you can see there from our presentation and earnings call. If you just multiply that by 4, we get to $170 million, okay? So we're going to do better than that because everything that you said, the fee earnings -- the AUM that was raised will turn into fee earnings, et cetera, as we invest that capital, blah, blah, blah, but just $42.6 million for the quarter times 4, 170. If we add to that, Tito, the same $12 million of incentive fees that we had in 2024, I'm just repeating that, and again, most of that fees came from our credit strategies and the volatility or whatever in the market favors our credit strategies here, trading our bonds, et cetera, but whatever I'm keeping the same $12 million as last year. So $170 million plus $12 million, that's $182 million. If we do raise the $6 billion for the year, now we raised $3.2 billion in the first quarter, so I think we're very well-positioned to raise the $6 billion. The $6 billion means on average, $3 billion a year, right, $6 billion for the whole year, average of $3 billion, even though we jump started with $3.2 billion, but let's say, average of $3 billion for the whole year, 96 basis points of management fees, so 96 basis of the $6 billion is $28 million. So if I add to the 182 number $28 million, that's $210 million right in the middle of the $200 million and $225 million. So if I just repeat the first quarter on FRE, which I think, again, we're very strong in doing better. If I have the same incentive fees as last year, and if I raise the $6 billion average of $3 billion, and again, I started the year with $3.2 billion, I already get to $210 million, right, in simple math. So again, that's why we think I'm here saying that we are reiterating the guidance of $200 million to $225 million. I hope I answered it.

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

Could you please provide an update on the integration of all the M&As completed last year, talking about also what parts of the process have been easier or more challenging than expected so far?

Of course, Ricardo, nice speaking to you, and thanks for participating. I think internally here, we're calling 2025 our integration year. And as you know, we did, then in our 3-year guidance, give inorganic guideline, but to the tail ended, right, doing acquisitions in '26-'27 and not doing relevant acquisitions, at least in the guidance for 2025 in order for us during the later part of '24 and in '25 to integrate the business and give us that time to do that. That has been our focus. I think we launched internally what we call a One Patria program, going all the way from the front line to the middle office, the support areas, the back office, et cetera. Right now, we're pretty happy that we are on target on the integration. We haven't seen any major issues there, anything that actually concerns us. No yellow flags, to be honest. I think we had already designed what we wanted to do on the process side and on the governance side. On the system side, we are implementing. So giving you one example, all of our HR is already under the same system, all our payroll, compensation schemes, valuation, blah blah, blah, that's all done and we actually did go through end-of-the-year evaluations of our 800-plus employees late 2024 under the common system, common methodology, we use the 9 blocks, we use one system to do all these evaluations, blah, blah, blah. Everything is under our Oracle ERP. We have [indiscernible] already downloaded in our share compensation program, that is a company that manages all of our employees on a global scale, blah, blah, blah. We go on and on and on. So basically done. We are a people business, right? So this is the most important part of our business because it is the majority of our costs, and we have to treat people very well, as we are a people business. And then I can go on and on, Ricardo, on the other support areas and the back-office areas integration. But as I use one example, which was HR, and yes, so I think we see into 2025 where we're already there, but getting to the end of the year with everything fully integrated and ready to go. And I think with that, we do generate synergies. So that's why we're also giving the guidance that for the year of 2025, we're going to post 58% to 60% FRE margins. And why is that? Because you saw lower margins last year than that because we are then with these integrations generating the synergies and being able to push the margins back to the 58% to 60% level that we had in 2023. So we're fine. I think we haven't seen any, again, as I mentioned, any yellow flags up to now, and hopefully, we're going to stay that way until the end of the year. I hope I answered your question, but if you have anything specific about the integration, I'm happy to be able to answer it.

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

My question here is regarding the pending fee AUM you told us during the call. So could you give us an overview of this $3.5 billion, maybe a breakdown, such as what are the strategies they will be allocated and the expected management fee on them? And also, if you could share expectations in terms of the timing of these allocations, that would be great?

Thank you very much. Thanks for your question here, and thanks for participating in our call. Well, we mentioned there that we have around $3.4 billion, $3.5 billion of pending fee-paying AUM. I think this is pretty much broken down in most of it into our infrastructure and GPMS verticals. However, this number changes a lot over time. So I'm giving you a picture, not a film of what happens. So I would, my humble suggestion here, project as we look into the future, the average management fee that we are currently having of 96 basis points over once we actually deploy that money. You can see that the breakdown that actually favors infrastructure and GPMS. Infrastructure has a higher management fee than the 96 basis points. But as a suggestion, I will use the average, it's very hard to break down quarter-by-quarter. As we see during the year, you might, in the second quarter, have a higher fundraising for another asset class, et cetera. So, on average, I would use a 96 basis points. When are we deploying that money? Normally, we deploy that money over the next 4 to 6 quarters. But again, on the infrastructure and GPMS side, I think within 2025, I think we're going to be able to deploy that money along the year, I would also use an average for the year as we do deploy that money over the second, third and fourth quarter. And as I mentioned during my answer to Tito's question, when we project that we're going to raise $6 billion, which is our guidance, we project that on average, we're going to have $3 billion of fee-paying AUM, right, just as a natural average here. But as we did raise the $3.2 billion in the first quarter, we're in a better position to be able to invest that money earlier than our projections because of the fact that we are now with this money ready to go. I hope I answered your question. Maybe if you want to ask any other further questions, I'm glad to answer.

Our next question comes from the line of Guilherme Grespan with JPMorgan.

Congratulations on the fundraising. My question is basically 2. The first one is on credit, a very strong performance. It was mostly the high yield, right? And also, Chilean fixed income was also strong. Just a little bit more granularity. What do you think drove this very strong performance on credit in terms of fundraising and if you expect it to be resilient throughout the year? I know we had the pension reform in Chile, but I don't think it's in the numbers yet. So I just want to know what drove this performance? And then the second is just a recap on the drawdown funds. I think nowadays, you're sitting at $2.4 billion committed capital on infra already and private equity 1.5. Just a reminder, what is the size target you want to have on the funds? And what is going to be the timeline ahead, until when you expect to fund raise those funds?

Thank you very much, Guilherme. Thanks for participating in the call. And going back to your credit question. No, we've been performing very well. I think the team has been able to actually ride these volatility moments extremely well and beating the benchmark, as you saw in most of the credit funds and even more so in the flagship funds, the dollar-denominated LatAm high-yield. It was a question of being the right overall for the fund of life duration with everything that happened. Also, as we see within the countries in South America, Chile coming first in lowering inflation expectations, lower inflation, lower interest rates, with an interesting view on the potential political change later this year. So I think that also reflects in better equities and better credit prices for Chile. And I think going into Colombia, that will have elections early next year. We are also seeing that the current government is driving very low popularity rates and there might be a change there as well. The market will begin to anticipate that, I think, later this year, which will continue to benefit us as we position ourselves in these securities from these countries. And then it comes to Brazil later next year. So it's a little bit far from the Brazilian election here. So that, plus, I think, the strategy of the team, plus the moment of high interest rates in general did benefit the asset class. And I think it will continue to do that. I think we raised a private credit fund late last year, early this year. And I think we're already anticipating raising a second private credit fund, LatAm Pan-Regional sometime this year because of high interest from investors. So we might launch private credit #2 already 9 months after closing private credit #1, which you can see that I'm giving you some data points on the high level of interest from investors for our credit products in general. On the Private Equity VII and Infrastructure V that you asked, Private Equity VII will probably finish with around $2 billion, adding the SMAs that were directed to private equity that I just mentioned during the call. The SMAs that we raised in the first quarter, most of them were guided to private equity to invest along Private Equity VII and to invest along Infrastructure V. So we'll probably land around $2 billion. They are fee-paying and very good fee-paying management fees and performance fees, these SMAs. So it adds to that vintage. So within the vintage of Private Equity VII, we have the closed-end fund. We have some closed-end funds that are quite regional, closed-end funds just for Brazilian reais. We're going to have a closed-end fund just for Colombian pesos, and we have now these SMAs. So if you add the Pan-Regional dollar-denominated fund with the Brazilian just reais fund, the Colombian peso-denominated fund and the SMA and all of these, they have to invest together because it's -- that's how investors ask us to invest alongside -- one fund investing alongside the other. Even though they have different currencies that denominate their management fees and performance fees, they all invest together. So it's a $2 billion vintage. Same for Infrastructure Fund V. I think we're going to surpass the $2 billion, probably we're going to be at the $2.5 billion. We already surpassed the $2 billion, probably going to be at the $2.5 billion. And I was also always saying that it's going to be around $2 billion to $2.5 billion and Private Equity VII is going to be around $2 billion. So we'll get there for Private Equity VII and Infra is going to be closer to $2.5 billion. Same as, we have Infrastructure Development Fund V dollar-denominated Pan-Regional. We have Infrastructure Development Fund V reais-denominated. We have Infrastructure Development Fund V of Colombian peso-denominated. And we have these SMAs that invest paying fees alongside all these funds that I mentioned, totaling that we're going to reach, I think, over $2.5 billion. So happy that we're there. I think it took longer than we expected. I think not only us, but all the other alternative managers around the world are feeling that fundraising is taking longer than they expect. But I'm happy that we are landing at least with the numbers that we were talking throughout the last 2 years, actually. Thank you very much for -- I hope I answered your question, Guilherme. Thank you.

And I would now like to hand the conference back over to Alex Saigh for closing remarks.

Well, thank you very much for your time here. I think, again, up for a great start in 2025, great fundraising, great results. I think the -- as I mentioned here when answering Tito's question, our FRE for the quarter, $42.6 million, if you multiply by 4 and then if you add the same incentive fees as last year and then an average $3 billion capital raise for this year, we get already to the $210 million. So very well-positioned here to deliver the $225 million guidance that we gave you guys. Of course, also very well-positioned to deliver on the $6 billion fundraising target. And as we move into the year, I think that the region and Patria are probably going to be very much benefited from the whole tariff uncertainties because of the low geopolitical risks of the region and how we are very well-positioned to serve our Asian clients, Middle Eastern clients and European clients. So thanks for your patience. I hope to see you in person soon. And again, have a good Friday. Thank you very much. Bye-bye.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.