Patria Investments Limited (PAX) Earnings Call Transcript & Summary

Hello, everyone. I'm Andre Medina, leading Shareholder Relations at Patria, and welcome to the third edition of our PAX Talks, an investor-driven deep dive into our Global Private Market Solutions business or GPMS and how we generate Alpha in middle market private equity. We are very happy to have with us today leading the Q&A, Charles Keenan. Charles is the portfolio management along Life Capital, where he has led the firm's public markets portfolio since 2018. He previously worked at Blackstone and holds a Bachelor's degree from MIT. From Patria, we are very pleased to welcome Merrick Mckay, Partner and Head of Private Equity for GPMS. Merrick is a member of our Management Committee and the GPMS Investment Committee. He's an advisory Board member of numerous funds, a regular speaker at private equity conferences and a Board member of Invest Europe, Europe's private equity trade body. An Australian with British dual nationality, Merrick has over 30 years of experience in the European private equity industry. This will be a fireside chat Q&A format. If you have questions, each of you will have the opportunity to submit them, and we will try to get through as many as we can. Of course, before we get started, I have to make some introductory remarks and before I make some introductory remarks, I have to read the obligatory forward-looking statement. So I would 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 of the 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. Okay. With that out of the way, let me start by framing and putting some perspective on our GPMS platform and why it is important to our investors before turning it over to Charles and Merrick. Our Global Private Market Solutions business as of the second quarter had $13.9 billion of AUM, of which $11.4 billion were fee-earning AUM, $1.4 billion were pending fee-earning AUM and $3 billion were uncalled capital. The platform invests mainly in middle market, private equity primaries, secondaries and co-investments in Europe and to a lesser extent in the U.S., offering its clients multiple products and structures, including SMAs, commingled funds and listed -- a listed trust. The listed trust, Patria Private Equity Trust or PPET, is traded at the London Stock Exchange and represents over $1.6 billion of permanent capital fee-earning AUM to Patria. Since April 2024, when Patria closed the carve-out acquisition of Aberdeen's middle market private equity solution business, which was the base for the creation of this strategy, it has raised over $3.5 billion. From a financial perspective, as of the second quarter, the business generated approximately 17% of our management fee revenues, and we definitely view GPMS as a key component of our growth strategy. On our December 9 Investor Day, we indicated that we believe GPMS fee-earning AUM can -- close to double within the next 3 years. With that as a backdrop, let me now turn it over to Charles and Merrick. Guys, thank you for doing this, and it's all yours.

Wonderful. Well, thanks, Andre, for that Introduction. Merrick, we don't have a ton of time, but it would be great to just hear a bit about your background. How did you end up running the Private Market Solutions business at Aberdeen?

Thanks, Charles, and thanks for the introduction, Andre. So I'll try and keep this short. As Andre mentioned, Australian dual British nationality. So I came over to the U.K. in 1992. I got a job in a -- like a corporate finance advisory advising in the private equity market, 5 years doing that, then 13 years as a direct investor in a company called Primary Capital, which was very much low mid-market private equity, a bit of a midlife crisis in 2010, didn't know what else to do and ended up joining Macquarie for a short period of time to join the dark side as being an LP. Back then quickly moved into that business joining what was called Standard Life Capital Partners, part of Standard Life, a very large U.K. institution and been investing in European and U.S. private equity for many, many years. In 2017 -- so it was 2014. In 2017, Standard Life and Aberdeen Asset Management, two -- again, large Scottish institutions merged. Both businesses had private equity divisions, and so that came together. And I was leading the European business of that from 2019 onwards. I think we'll come on to a bit that -- I think after a few years there, it was pretty apparent that Aberdeen probably wasn't the right home for what we did for various reasons. And so the decision was taken certainly with our support that we should seek a new owner. So hopefully, that's helpful.

Yes. No, that's great. And good segue. So walk us through how the carve-out came about. When did you start talking to the Patria guys? And just starting at the beginning, what's the story of that transaction?

Yes. So try to keep it succinct. When -- there were a number of things that we needed as a business to succeed in the future and taking sort of being ownership agnostic about it, we really put it to Aberdeen and say, here are the things that we need to succeed if a lot of this was around distribution. I think that as many would recognize that the public market model is very, very different to private markets. So that needs a separate type of process. There were challenges around, we needed investment in systems and in people. So it was really a decision either you need to invest in that or we need to go elsewhere. So they took the quite reasonable decision to seek an exit. I think at that point in time, it was looking to put us with some other parts of the business just to sell, which we thought was going to be pretty challenging. And after a period of time, came back to really just our part of the business, which was principally the European private equity business, but with a small part of U.S., which I'll come back to. What was interesting for us is, with one exception, I would say, every client that we had were really backing our team. We had very close relationships. We talked to our clients all the time. We made them aware of where we were on things. They were -- we were very mindful of wherever we needed to be, that need to be somewhere that they were happy with. But really, it was the other way around. I think their view was they would be happy if we were happy. So it put us in a really, I think, strong position. There was no way this is a people business that you can go and sell that over our heads. And so it gave us a very strong position in the sense of who we're talking to and how that came about. So that was very helpful. I think candidly, when Patria's names were mentioned, I'm sort of embarrassed to say that I think a lot of the team hadn't heard of Patria. And our initial thoughts were Patria LatAm direct business. Why? But we listened and there are a number of things that over time, I think really resonated with us on how they -- how they're approaching this, how they view the opportunity, particularly around LatAm looking outside, very entrepreneurial. And so -- and able to move very, very quickly. So we got really comfortable with Patria and vice versa. So coming back to that timing, I think, gels our discussions, I think, with Patria really started in earnest -- in early 2023. I think there was exclusivity in mid-2023 the -- we signed -- I think the transaction was signed in October 2023 and then completed -- it was quite a long period for regulatory reasons and investor consent and so forth and completed in April last year.

Great. And let's double-click on the LPs there. So how did the LPs think about the transaction? What rights do they have in the -- given the change of control, if we had 5 of the LPs around the table when we're talking to them, what would they say about the journey? And yes...

So I think you can put them in 2 very broad buckets. Firstly, the majority of our business currently -- clients is with SMAs and you can almost forget about the idea of change of control. The beauty of a separate managed account for many large investors is they can modify what they're doing at any point in time. It's their vehicle. And they can -- if they don't like what we're doing, they can effectively give us notice. So not even a change of control. They simply have to be happy with what you're doing for the whole time. So again, you have a close relationship with them. On the other side, there were a number of our pool products, have specific change of control consents and you have to go through that process. But again, the nature of our business is we're talking to those investors all the time and making sure that they're happy with what they do. It's a high degree of transparency. So with one exception, I said before, every client that we really had within Aberdeen viewed us as a team. There was one client that actually was an Aberdeen relationship and was the only mandate or client that didn't actually transfer or sought to do something else post acquisition. So very, very high success rate in that, that's what we expected.

And I guess just for context, how many clients roughly do you have?

So I think in terms of SMA clients, we have about 20, I think, that are meaningful and are still working. And then we have a number of different pool products at different stages with clearly numerous underlying investors.

Makes sense. And I guess give us a flavor for who are your LPs, who are your clients? And why would they would choose to partner with the private market solutions business versus just saying, okay, I want to allocate this amount of money to private equity. I'm going to give it to -- give all of it to some big private equity manager.

You can spend a lot of time talking about that. Again, let's separate that into 2 different areas. So if we think about something like a pool product and one that we -- that's been very successful for us for a period of time were called SOF series, Secondary Opportunities Fund series, which is just finished investing its fourth vintage, has been very, very successful. So that's out there effectively, I think, if you like, competing, it's a secondaries vehicle. And so inevitably, when you're talking to investors, there are people who would be wanting to invest in a pool product as opposed to something else. I think by definition, they are attracted to the secondaries market. And so there's inevitability that they'll be comparing what your offering is against other secondary managers. On the other hand, as I mentioned before, a lot of our businesses with SMAs. So these will typically be investors who are large enough and sophisticated enough to want to have a strategy which is targeted at a certain area that we have expertise in, but don't have the teams or the people to be able to execute that themselves. And you can get a broad range of solutions there. So we have, for instance, a U.S. public pension plan that is very taken by and fundamentally believes in the mid-market as a place to be investing. From a U.S. perspective, they're very comfortable with covering that themselves. But when they look at Europe, they realize there's no way they can do that. And so they want to work with somebody who can provide that offering, and we work very closely with them. That would be one example. Another one would be a Dutch pension plan who is, again, taken very much with the lower end market, but has a very specific aspect of what it's looking to do. Initially, we only -- they only wanted to make primary commitments into funds of under EUR 1.5 billion in size. And they didn't want to hear that, oh, we've got 6 great managers this year and 2 the next. They want to have absolute strict vintage diversification with 4 effectively picks per year. So it really does vary. But what tends to happen is, the clients will have an idea about what they're looking to do, and they'll be marrying it up with effectively our skill set and our ability to do that for them.

If we zoom out at a high level, is it too simplistic to think about -- think that the decision kind of comes down to scale, where if an allocator wants exposure to European middle market and they don't have the scale history or expertise to have -- built out the team themselves and develop the relationships over decades like you have that a private market solutions manager like yourself makes sense. Is that kind of the crux of it? Or is there something else too?

I'd say generally, that is the case. When we're looking at the separate managed accounts market, for us now, it's -- where does it start making sense for someone to think about that? And typically, it would be probably $50 million to $100 million is what makes sense from a vehicle and from a cost perspective, and that gives them the ability then to have a very tailored approach. So again, how does that fit in effectively with the private equity or private markets allocation of that investor is looking to do? A bit it's interesting. In the past, for instance -- we have a number of years ago, managed investments for CalPERS. So CalPERS again knew that it was making very, very large tickets or investments. I could do that itself, but recognize again, maybe from a European context, that was very difficult for them to do. So there's someone who is -- you would argue is a very, very sophisticated private equity investor, but just recognizing that it needs that on-the-ground presence -- so I'd say scale is definitely a big part of it. But one of the developments in our market, we've come from effectively the fund of funds market, which was, again, large funds, very pretty much straight jacketed with what they could do -- with what people could do. Now I think people can -- or institutions can have a highly tailored program for a lot less than they would have probably 10 or 15 years ago.

Interesting. And you touched on that, a number of the clients have a specific view that they want middle market exposure -- European middle market exposure, have a view that, that is somehow unique or better. Walk us through why the middle market, what are the benefits? Why have you focused the business there over time?

So I think it's -- for us, again, having been in the market for many, many years and having invested initially in people that were very small and have now become mega managers, we've seen a lot over a long period of time. What we have seen specifically is the mid-market has generated superior returns than the large cap or mega cap market over time. I'll come back to talk about this in a minute around cash flow dynamics. And so the first thing is the returns are fundamentally better. If it didn't, we wouldn't have an private offering because so many managers -- investors can effectively make those large mega cap investment decisions themselves. It's not difficult to do. It's low value add from our perspective. Why is the middle market a better place to be for investment returns? It's a target-rich environment. There are this lower pricing and leverage. There's far more growth opportunities open to these managers, far more exit optionality. There's lower correlation with public markets. And one of the things that has really developed since the last financial crisis, particularly from a European perspective, has been the sector specialization and the genuine operational value add that managers can do now at a much smaller level. So again, maybe 10 or 15 years ago, the operational value add that people were doing was to have the larger mega cap players. Now that's really gone right down into smaller managers with very specific sub, subsector strategies. From a European context now, for instance, rather than in the past, we would have been thinking about things, portfolio construction maybe from a geographic level, now we can construct things on a very sectoral level. And that ability to add value is a bit of a trite term in that mid-market has just pervaded for a long period of time. One of the challenges I think we and others who focused on the mid-market have had for a period of time is that, a lot of investors say, yes, okay, I recognize that the returns may be better. But actually, the returns in the large mega cap end of the market have been really good for an extended period of time. So do I need to get that extra return for something that, by definition, even if they take us on, requires more effort. What I think we've seen over the past few years is the tide has absolutely turned in that market because you're now seeing private equity returns reduce over time. Again, I think over time, at a premium by definition to public markets, but not at the excessive premium that we were seeing a few years ago. And so I think that's now forcing people to really look at that area much more. I mean it's interesting. I think if you -- something like 50% of private equity fundraising is in funds of $5 billion plus. I think it's very easy to do that. I think it's 80% in funds of $2 billion plus. The other thing that has really changed a lot of late and a lot of investors are really struggled with this is, the cash-on-cash returns have been coming back from private equity investors. LPs for a number of years were doing really well up to and just after 2020. They were getting very high returns and very high distributions coming back and people putting more and more money into the market. And this is right across the scene. What we've really seen over the past few years has been a marked drop off in distribution activity at the large and mega cap end of the market. The IPOs have dried up. They're more reliant on debt to have exits, but sovereign wealth funds haven't been there. Whereas in the mid-market, distributions have definitely declined as well, but have actually held up much more than that part of the market. And so that's something now I think a lot of investors have really focused on because they've seen that.

Interesting.

So there's a lot in there and I'll cover that...

Yes, yes, yes. So let's chew on that a bit. You mentioned that historically returns in the middle market have been higher. Has -- is the dispersion of returns also higher?

Yes, but not to the extent that people think, so...

I guess I bring it up because I believe in Swenson's book on allocation, he talks about this idea that if dispersion is really high, it makes sense to try and hire a manager that you think can get into the top of that bucket. But if dispersion is really low, you want to focus on lower costs. And so perhaps one can make the argument that middle market returns are higher, dispersion is also higher. It makes sense. It would be a reason why someone like CalPERS would select someone like yourself who can -- who has the expertise and historic relationships to access that top segment of the returns. Does that make any sense? Or am I pushing it too much there?

No, it does. I'll go back to this point, but I think when returns at the large mega cap end of the market have been really pretty good, and it's been relatively easy for large allocators to access and they feel confident about, okay, they're not going to shoot the lights out, but they -- again, they don't think they're going to be in a situation where they're underperforming or losing money. It's an easy decision to make. So that's effectively what we're fighting against. But there's been a smaller, if you like, set of investors who fundamentally think, okay, is this going to continue in this way? Or is there another way of accessing it to give me the control I want that's, again, relatively cheap and worth it. So clearly, the cost of us doing something for that is a fraction of the extra return that they should get . So I think with that the case, we're -- again, we're tending to talk to sophisticated investors. And what I mean by that is, people who actually understand that there are fundamental differences between -- in private equity and what it will look like in the future.

Interesting. And so I mean, not to just put this in public markets speak, but is it as simple as over the last -- from 2010 through 2020, maybe even going back before that, there was just a lot of positive beta in the private markets as interest rates came down, more money flowed in. And so because the beta in the private markets was really good, you can make your life simple and just allocate to a big manager. And now private market beta isn't what it once was. And so folks are searching for private market Alpha. And that's where kind of the middle market comes in, that's where you guys come in, where you have those relationships?

Yes. I think that's spot on. As I already said at the beginning, I've been in the industry for 30 years. I've been through a few cycles. I'd have to say that the last one has been the longest. It was -- I don't want to be. It was relatively easy to make or to put it more charitably, there were tailwinds. Everyone recognized it. I think a lot of people started patting themselves on the back. So there was definitely a element of beta. We're very -- our returns have been very, very strong for a lot of our mandates. But I stand back and say, well, it should be good. We've got to be able to -- one of the things we've been able to demonstrate that Alpha from our perspective as an indirect manager through our manager selection, our portfolio construction, our co-investment activity, I'm pretty confident we can do that. But that's where I think a lot of people have got tied up and start -- they've done very, very well. And now the tide has turned. So it's the old thing about who -- when the tide goes out, you can see who's been swimming naked in that. What I will say is one of the things I noticed certainly compared with the last -- with the financial crisis, GFC, was that before that, and it is particularly from a European context, I'm not going to speak about the U.S., but really, almost everyone, I would say, was a generalist. And -- trying to pick numbers on, I'd say a huge amount of what they did was P101. They were definitely benefiting from multiple arbitrage through positive cycle tailwinds, incentivizing management teams in an appropriate way. But the best managers since then who'd come into it and the only ones who were back have absolutely brought something else to the table now. So to me, there's far more value add that's been brought into the PE model. So there's been beta and genuine alpha that's for me, it's far more of that now. But as I say, it's become more challenging, particularly around -- it's the exits. I think people -- the people we back have shown genuine ability to think strategically and add value to their portfolio. It's when the exit markets have dried up somewhat, particularly the larger mega cap end of the market, that's where it's become more challenging.

Makes sense. Let's double-click on some of these relationships. Marco, I think made a really interesting comment on the acquisition call, going back to October of '23. And I'm paraphrasing here, but he said something along the lines of, we identified private market solutions as an area that made sense for us, and we wanted to get into it. And to get into it, we realized that we basically had to acquire someone because the business is all about relationships. And so you need to acquire that tenure of relationships, trying to go and build it yourself, it would take 20 years. What's the typical duration of the relationships that you have, both on kind of the LP side and the GP side? We'll start there.

Yes. So firstly, you hit the nail on the head there. That relationship is both on the -- our investor side, our clients and on the investment side itself. So on the client side of things, even at the pooled product level, the people coming in -- investor in a pooled product are not someone that you simply make an investment decision after having met you a few weeks or months previously. They spend their time understanding what you do. But then when you talk to the -- we look at the SMA clients, these are people who really need to develop that over a long period of time. This is a big decision that people make. So those relationships really matter and as demonstrated, as I said at the beginning of the call around when we were exiting how that works. So that takes a lot of time. But then really on the investment side of things. So again, what we're doing is making typically primary, secondary and co-investments or a combination of those and there are definitely different flavors for each of those into -- in each of those cases, they are into or alongside a GP. And whilst you could turn around and say, right, well, I can simply go and start allocating our meet different managers, there's literally hundreds of credible and thousands of credible managers that you could go and invest in. What we bring to the table is a deep understanding of that addressable market over an extended period of -- a very extended period of time who are the best people in that. So that when we're working alongside a GP, we know them and they know us very well, and we can triangulate that in many, many, many ways. The relationship there -- that we have with them can lead to a number of very positive benefits for our investors or investment vehicles. Firstly, when it comes to situations where this is a really very strong manager and with this allocation, we'll get more than our fair share because of that relationship. When we look at co-investment activity that we undertake. And just to be clear, a lot of co-investment activity in this market is where, particularly at the large and mega cap end of the market is where a GP has made an investment, they want to provide some additional capital or reduce the size in that and will go to their LP base in quite a syndicated way. They will go ahead and say, look, here's what's available. You've got 2 weeks to make a decision. We'll do a management call on that. And it's quite a very binary decision and a quick one, but relatively easy for people to make. That is not typically the type of co-investing that we're doing. What we're undertaking is working alongside a manager who really needs us and/or somebody else to be alongside them either pre or just after they made that investment. So it's really doing a lot of sort of underwriting alongside the manager. Now that's something that this really matters to a GP. They need to be confident that we're there, we can move quickly. So that type of relationship is something that takes a lot of effort and time. Our secondary activities cover a broad range. But probably the core of what we do is, where we're acquiring an LP interest in mid-market funds. And these are typically in a situation where we are either an existing investor, primary investor with a strong relationship or someone that we know very, very well, which clearly gives us an advantage against a pure-play secondary buyer who doesn't have primary capital to deploy. So there's definitely information symmetry there and the GP would like us to have that because we're an existing investor, hopefully, with more primary capital to deploy in the future. When we look at a lot of our activity over the past few years, we've been very successful in these concentrated secondaries or these continuation vehicles where a manager typically has an investment that would make sense holding for longer, typical secondary buyers are providing that capital. And the situation where we're quite often an investor -- a meaningful investor with a strong relationship with the GP, we can work alongside the GP and say, here's how you should be thinking about constructing this and working there. And we clearly have a much greater advantage in that situation than a pure-play secondary player. So I'm just giving some examples of where those relationships really matter. And to Marco's point, that's something you just can't go and do quickly unless you want to simply throw a lot of money at it. So I hope that gives a...

Yes, that was great. It would be interesting, if possible, to kind of walk through an example of you guys have been primary investors in a GP for a while. There was a co-investment or a secondary opportunity that came up, how it came up, just kind of walking through a story of a specific example of what you're talking about.

One example I'll give is actually probably more on the co-investment front and how a relationship can develop. So we have, again, some very strong GP relationships that have gone back many, many years, which is hugely beneficial. But we're always on the hunt for managers that will bring something else to our portfolio, typically along sectoral plays. So just going up at a slight tangent Charles. I mentioned before about the -- how there's really been this people now think -- doing things from a sectoral position. So for us, for a number of years, we were -- have been probably quite heavy from portfolio construction on health care, healthcare services, technology services, actually quite a lot of services. So what we're thinking now is how do we construct that if -- is there either a gap in what we're doing or is somebody else bringing some particular angle to something that we haven't had before. We came across a manager, a new manager in COVID, sort of bizarre and this was the only time we've ever invested in a fund or investment where none of us had ever met the team physically. But it was a team that had got together. They've done a few deals. They had come out of some well-known European GPs that we knew very, very well, so we could really triangulate again, what they're doing, their story. Part of -- again, what's quite often the case with managers who were just getting into business. They will have made a few investments themselves or when they're raising a fund, they need more firepower to make those initial investments. So -- which we view as something that's -- again, something that's relatively easy for us to do because we've done it for such a long period of time. It gives us a phenomenal angle when it comes to diligence in the manager. Nothing works better than -- than working alongside them in a live transaction. So we worked very closely with them in making -- investing in their fund, effectively cornerstoning it to some extent by getting a lead role in an investment they are working on. So we were able to do full diligence alongside them. That's hugely valuable to them, both in terms of the capital by having us as a reference name in that and it was enabled them to attract more clients to it. And that relationship worked very well. The co-investment itself did exceptionally well and their first fund has really done exceedingly well. When one of their assets look to be appropriate for a continuation vehicle. So for them, there was a huge amount of additional growth opportunity in this company. There were a number of investors who came in just to the fund who were, again, how do you provide the option for them to exit and those who want to stay. So again, who else will they turn to, but us to talk through how they would work through that process. And so we were able to take a lead position in that continuation fund or a secondary. So that's a really small snapshot of how we work very closely alongside existing managers. I think another example of the relationship side of things is, an area we're looking -- actively and we made our first investment is in GP stakes. So again, it's been a very -- an expanding market. I think where a huge number of investors are now seeing the opportunity to invest in a GP to give them capital for new activities or taking a stake in the funds and GP, the GP commit and the GP itself. It's another really good example that when we've spoken to a lot of our key relationships over time, they would have a preference for having us come in as investors, someone they have known and trusted for a long period of time rather than necessarily almost a pure-play financial investor who, again, they don't know. And so again, we made our first investment for our clients in that earlier this year. That's a strategy that we're looking at. That's something we should do on a stand-alone basis to benefit from that angle. But again, a very good example of that it's a relationship business.

Makes a lot of sense. Shifting gears here because we're already through half the hour. How should we think about the building blocks of growth over the next 2 or 3 years? I think Andre in his introduction mentioned that at the Capital Markets Day, stated that the target was to roughly double fee-earning AUM in the business over the next 3 years. So just -- yes, what are the building blocks for that?

So the first thing I'd say is -- the #1 priority for me is to continue delivering the very strong performance with clients today. That matters hugely to them. So that's a key priority. So fundraising, I think, is a key area for us. We need to continue to maintain and grow our SMA client base. A number of our mandates are either actually evergreen by nature of the vehicle itself or it's say effectively evergreen because the client effectively puts things into different tranches. We've got such a strong track record in delivering a broad range of activities for different SMA clients. It's an area where we're looking to now because we're able to grow. But as I said before, these relationships take time. So we've got lots of irons in the fire there. Definitely looking to grow our successful secondaries strategy, the SOF strategy. That's something where we could absolutely deploy significantly more capital and effectively the same transactions. We're leaving money on the table. That's one point I probably would say, Charles, that with our, I'd say, our existing investment capabilities with what we do, we can take on generalization, but I think significantly more capital without increasing the operational -- I think we've got very strong operational leverage in that area. So that's beneficial to us. Developing more pool products. As I said, we've only really got one at the moment, but there are other areas where, again, we have a particularly strong track record in an area that is something that should be resonating with clients. Developing new channels and products, things like semi-liquids with partners, the CFO market and insurance channel is very interesting. And I think the other area on fundraising is really developing the LatAm opportunity. And this is if you go right back to one of the reasons that I think Patria really saw the global private market solutions opportunities for LatAm investors who really clearly benefit from Patria is maybe not a household name, but financially is very, very strong in that region. LatAm is significantly underpenetrated in terms of its allocations to private markets, private equity than other developed markets. And so a really strong opportunity for us to be, I think, at the forefront of that in fundraising. On the investing front, again, we may -- we are -- at the moment, we've got a very, very large and strong European presence. We've got a much smaller one in the U.S. It's headed by my colleague, Eric Albertson, who's been with the business for a long period of time, has a phenomenal track record, but we recognize that we have a clear imbalance in terms of the offering to people. And the U.S. is clearly massively important. So we're looking very carefully right from the start about how do we enhance that around bringing people into it. I mean we've already brought new team members in there. Do we have to re-hire? Do we make an acquisition of a business that sits alongside, has a similar investment philosophy with what we can offer to clients. And I think the other areas is developing some adjacencies to what we do. I mentioned GP stakes there before, using CFO technology to provide a different offering to others. So I mean, there's many things that we can go for. We're certainly not short of opportunities. I think it's where we place our bets.

If I can add one point there really quick. Like on our Investor Day, there was a page, I think it was Page 99 that shows a little bit how -- as Merrick was saying, how the strong returns also drive asset growth, right? We gave an example of this SMA, this account that started with about $200 million in 2015. And if we fast forward today, it has like about $1 billion -- almost $1 billion with us. So how this investment returns, strong performance that Merrick mentioned also contributes to asset growth?

Makes sense. Yes. It strikes me that one of the unique features of the business, and Merrick maybe this is too simplistic, but is because the SMAs are basically evergreen structures, you're growing your assets just through investment performance, whereas a normal private equity business which -- where it's all pooled structures, you invest, it grows, you return the capital and then you have to raise a bigger vehicle. And so if we think about the building blocks, you kind of have existing SMAs that are growing over time and that grows your assets, you then layer on new SMAs and then you have your pooled vehicles, which deploy, grow, get distributed back to LPs and then you raise new pooled vehicles, hopefully more of them in a bigger size. And that's kind of how the three chunks of the building blocks for grow. Does that make sense? Or is that...

I wish that were exactly the case, Charles. I think -- but when we look at those SMA activities, so there are certain ones which are actually evergreen vehicles. So if you think of our largest client is the Patria Private Equity Trust, 23 years, about $1.6 billion. By definition, that's a closed-end vehicle. And so the only leakage, if you like, and that is the dividends that you're paying. So that is almost full recycling, you get that. And we've got some other mandates that are actually set up as evergreen vehicles. The second bucket and I think -- which I think you were describing. I wish just all of the SMAs will like this, but this is where they're thinking for the long term and want to do it, but need to be doing it in tranches, and it's easy for them to turn to the table. But quite a lot of SMAs, unfortunately are where people wanting something at a particular time. I don't think we've ever -- certainly, in my experience, we've never lost an SMA through performance. But people's positions change. We had -- one of our SMAs was the pension plan of a U.K. financial institution. It's not investing in private equity anymore and it was a pure co-investment mandate. We had two tranches of that. Again, that's their choice. And so things can change. And again, that's the beauty of the SMA market for the client can change anything at any point in time. But broadly speaking, I think that's what we're looking to get the balance right between our SMA activities and getting that, if you like, growth through the effective recycling. But I think the other area we really want to focus on to is the pool products. I think when we look at our competitors, we -- the pool products are good, and it's a specific offering for potential investors who don't have the scale to be able to do an SMA. So definitely looking to extend that into new areas.

So maybe looking at growth from a different lens, if we were talking 10 years from now, and things have been incredibly successful with the GPMS business. What would success look like in 10 years? What would the business look like? What would you be doing? Where would you be doing it, the different geographies, different products, paint a picture for what that would look like?

One thing I'd say is that everything we've discussed to date within the Global Private Market Solutions has been private equity related and actually buyout within private equity related. So it's certainly the longer-term expectation that, that develops into a much broader range of private market solutions. I think, in terms of what are the areas that we would like to grow more, certainly on the private equity side, having more venture capabilities. That's something, again, we do a little bit of, but I think effectively acquiring the resource and track record to do that is an area we're looking at. I'll come back to the U.S. in a minute. Outside and other areas, certainly infrastructure, private credit, real estate areas, and this is effectively all as solutions providers and all ex-LatAm are all areas that Patrick is definitely looking to build. So I think come back to what would success look like, excluding the private equity part of the business, which I managed, I think it would be disappointing if we hadn't made some real inroads into developing other private market solutions and probably in other developed markets. Coming back to the private equity business, I mentioned before that, we really having a -- I'd love to have a team that is at least equal to the size or greater in the U.S., what we're doing, particularly the U.S., there is a reason that U.S. has -- is the biggest private equity market in the world. There's a reason that most investors have a home market bias within private equity. But the next area they looked to maybe up until recently was the U.S. So clearly, we have to have a really strong offering in that area. And fundraising, I think the success is we really see the benefit in the future of that LatAm market. And LatAm showing migrants coming into -- is a very heterogeneous market. The dynamics in Chile, for instance, are fundamentally different to Brazil. And there are certain reasons as to how they think about and why they're looking at global private markets or private equity at the moment. But it would be a shame if we hadn't really demonstrated the strong position that Patria has in the region to be gaining market share offshore. So I think those, I'd say, would be the -- and I think the look, I'm blessed with an incredible team of people who are very strong entrepreneurial. We've got great track records in certain areas and really think laterally about other things we can do. So I mentioned some of the things that we're thinking about at the moment. We've got no shortage of opportunities. I'd love to see some really develop from a standing start into a genuinely new and very scalable product line for us.

Makes a lot of sense. How should we think about the time line for Latin investors to be a material part of material LPs in the Global Private Market Solutions business. And what inning of that process kind of are we in today?

Honestly, it's really difficult to say. So if you look at something like the Chilean market, which is really quite sophisticated with how it views private equity globally. And we have an incredibly strong position in that market, particularly through the Moneda acquisition. So there, it's something which is actually providing probably a more bespoke tailored product for what we're doing. But again, you're going in there, we have an incredibly good set of relationships. But our competitors have already been in the market. And so again, I go back to what I said before, yes, we've got a very strong position there, but it takes time to develop those. I think once you start getting credibility by maybe you take on one SMA client in a particular area, that answers -- so things can grow from that. But that's something I'd hate to put a time line on because it's very difficult to predict. If we look at somewhere like Brazil, I think the dynamics are very different. There's a very high interest rates there and actually, the issues have been about actually investing in private equity anywhere given what the returns are. So I think you need to see a change in that environment before we'd see sort of material success. But -- so look, I'd love to be able to give an answer to tell. I know that the whole business is working very, very hard on that. We see tremendous opportunities, but it's really, really difficult to say.

Got it. When I speak with other investors who are early in studying Patria and getting up to speed, a question I often get is, why is Patria the right home for the Private Market Solutions business? We obviously touched on the LatAm opportunity. In the beginning of today's call, when we were talking about the carve-out process, you talked about how Patria is a very entrepreneurial place, how are of the things you're looking at when searching for a home was a place that would allow you to invest. I guess talk to us about how it's been like working with Patria, what you've been able to do and invest in today that you weren't doing under the umbrella of Aberdeen, give us some flavor for that.

Without naming names, it was interesting. So when we're going through our process, there was a very large European financial institution that was looking at us and very keen and we're going to put a lot of things in place to address the challenges of that financial institutions opening. But it was -- what was really interesting about that is that it's a large financial institution. And when it was -- it had to go through processes to bring people on board. So it was a very laborious process. And I'm not being critical of them at all. I completely get it. This is a new area for them. Patria, though, and again, this was really led by Marco, was able to come in and it was just a thought that was able to react to things very, very quickly, deliver on that. The lines of communication internally were very, very short. And so we're saying we need this that and the other to exist. Again -- obviously, we were questioned about it, but decisions were made quickly and assurance is given. So -- again, you're dealing with a business that was and is highly entrepreneurial and is able to move very, very quickly. So some of the things that were important to us, we had challenges around pay structure. We had challenges and we had effectively a hiring freeze or numerous positions that we needed to fill -- and look, I honestly can't -- I don't know what the count is, but it would be 20-plus people, I think, that have been brought into the broader business since the acquisition. Even before the acquisition effectively is, let's get these things done. I mentioned earlier around systems. We were behind where our competitors needed to be on really having a world-class system. That's something, again -- Patria, again, got it immediately, and we've been working very hard on investing in it. So there's just no shortage of examples of where that's been given. And I think on the other piece around this entrepreneur is when we think about -- when Patria thinks about how we develop in these other areas, there's no fixed view of we've got to make an acquisition that looks like this or do. There's so many different ways of skinning the cat. So that just gives you far more optionality in how you grow. So I think definitely, the LatAm opportunity -- because you immediately get it, okay, here's an area that overall is so underpenetrated for private markets globally and Patria has a leading position there. I think Patria has a bigger market share within LatAm than Blackstone has in the U.S. So that's very powerful. So that was definitely one element. And the other was the entrepreneurial and partnership nature of the business. That's been borne out.

Wonderful. I think we have just a couple of minutes left. I have a few more. But Andre, maybe I'll turn it over to you and see if there are any questions from the audience before I take up all the time here.

Yes. Actually, you're getting to the top of the hour. Let's try to squeeze at least one question here from the audience. I'll read it exactly as it came. It says, my understanding is that performance fees for the prior funds did not transfer with the acquisition. How should we, as other shareholders, think about performance fees or PRE for GPMS over the long term? And Merrick, even before we start that, if I can just give a quick note. So Patria just today -- our net accrued performance fees as of the second quarter totaled about like $400 million or $2.47 per share with about like $50 million coming from our Infrastructure Fund III, which is in full realization mode. And this balance, as the question says, does not include any performance fees accrued for GPMS as the prior funds were not transferred with the acquisition. So now I'll give you the time to talk a little bit about performance fees going forward.

So that's absolutely true. I'd say that a negative and a positive, I think, on the GPMS when it comes to performance fees. The negative is that, firstly, from the indirect business for those mandates, funds that have performance fees, they are lower level than pure-play private equity or private markets. So even if our model was sort of a 1 in 10, I think there is no mandate that we charge more than a 10% performance fee or carry on that. So it's lower. And also, our mandates differ hugely. So we have a number of mandates. For instance, the Patria Private Equity Trust has no performance fees at all. So what I would say is that the proportion of developments overall revenue that would be ever attributable to performance fees within GPMS is lower than what you would typically see in the direct business. The positive, though, is that I mentioned before, we have such a variety of mandates that do have performance fees that when you get into -- when you get into the period where you say nothing was done, but there will be if you like, multiple shots on goal here because you're not reliant on just simply the next fund in the series, which may or may not do well. And so I think there is an inherent longer-term diversification benefit of that, albeit the quantum of performance fees would inherently be lower. Does that explain most of the question?

Yes, I think it makes sense. Maybe I'll squeeze one last one in here. How do you think about growing the sales and distribution side of the business? And specifically in relation to that, what has changed since the business has change the ownership?

So firstly, if you like, on the LatAm side, Charles is -- Patria has a very large distribution team, so...

Yes, obviously, LatAm didn't exist before. Yes.

That's correct. Ex-LatAm, so firstly, there's investment in people. What I would say is that the -- there isn't naturally a massive intersection between -- Patria's sort of global investors in LatAm with what the private markets investors are because again, it's a different offering. But again, this is providing an opportunity for far more conversations and new markets. But there's investment in people there that's happened and is continuing. So -- and the other element is, again, it comes back to being very pragmatic how we use external companies, placement agents in particular regions or particular strategies to supplement that as we grow. So it's really a combination of using external parties and increasing internally. The other thing I'd say, Charles, is the nature of our business is, we're very client centric. So a significant part of the senior people's time is around maintaining our existing relationships and developing new ones. So we've got a very front -- front-facing role in that because of that relationship nature, particularly on the SMA front.

Great. Andre, are there any more questions from the audience?

Actually, there are a couple, but I think we came in to the top of the hour. I'll free you guys, and I'll just reply to those through e-mail. So thank you very much, Charles. Thank you very much, Merrick, for the conversation, very valuable. And again, if you submitted your questions, we'll get back to you guys through e-mail if we haven't answered to you here.

Thanks a lot, Charles. Thanks Andre.

Thank you.

Bye-bye.