Patria Investments Limited (PAX) Earnings Call Transcript & Summary

Hello, everyone. I'm Andre Medina. I lead Patria Shareholder Relations, and welcome to the fourth edition of our PAX Talks on macroeconomics, Investing Amidst Ugly Geopolitics. This will be a fireside chat Q&A format. So you're welcome to submit your questions. If we're not able to, if we don't have the time to answer your questions live, we'll get back to you via e-mail. Before we start, I have to read the 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 section of our latest Form 20-F annual report. Also note no statements on this call constitute an offer to sell or a solicitation of an offer to purchase any 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 may 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 a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable IFRS are included in our earnings presentation and SEC filings. So with that out of the hand -- out of the way, I'm very happy to have here with us today Luis Fernando Lopes, our Chief Economist that most of you know; and [ Thiago Pasqua ], our Chief Strategy Officer. And to kick off, I would like to ask both of them to give a brief introduction of themselves, of course, touching base on how they support our investment team and Patria's growth story. So Thiago?

Thank you, Medina, and good to be here. Pleasure to be with you guys. I've been at Patria for 7 years roughly. I worked directly with Alex Saigh, our CEO, running Strategic Office and what we call office of the CEO as well. So related to our strategy, our M&A agenda, and I support Alex on our management daily activities and, of course, strategic initiatives that we have internally. Pleasure to be here. Good to be with you guys. Luis Fernando, please, floor is yours, introduce yourself, and we can jump start.

Thank you very much, Thiago. Thank you, everybody, for connecting. Please spare some time to listen to our history. Head Economist and Partner for Patria, I'm definitely the elderly here in this conversation. I joined the company 30 years ago, 1996. And the role of Head Economist at Patria actually speaks of several jobs at the same time. So how do we help our investment efforts. First, of course, we have to produce regular analysis on the basic macroeconomic indicators, economic growth, inflation, interest rates, foreign exchange, so on and so forth. Also that we started doing because the focus -- our initial focus was only in Latin America, knew that geopolitical analysis was something very important for the region. And over the years, we learned that, well, that's something very relevant for investing in any corner of the world, not only in Latin America. And then -- but there is a second block of things that we do and we made deep dive today, which is called sectoral knowledge, something that the economic team also does is to connect the macro story with those key verticals, investment verticals in which Patria has an expertise. So if we look in terms of our capital deployment, 2/3 of the capital that Patria has deployed so far are concentrated in 6 key investment verticals, which are health and wellness, food and beverage, agribusiness, power transmission generation and distribution, especially renewable power, logistics and transportation and then digital and tech services. So we have to produce research, knowledge, insights on these key sectors and connect to the macro story. And last but not least, there is a third block of what we do, which is basically look at the markets, see the capital flows where they are going to portfolio changes. And of course, we do this to help our fundraising activity. And in addition to that, we have to measure ourselves, our funds, our products against the benchmark, against the competition. So that's also something that the research team helps do. And then in this condition, for example, and actually some -- everything that I mentioned, we travel a lot. We talk to a lot of limited partners and investors around the globe. So we also can have a very good intuition about their concerns, portfolio changes, if they are getting increased exposure to one region or the other, so on and so forth. So it's a combination of this, everything shows what we do. And then just to start, I think perhaps keeping the ball here, one thing that we can start if you focus -- talking about Latin America, we think that's interesting. That's a mix of everything that we mentioned here. For instance, there is -- in addition to geopolitics, we are going to discuss probably what's happening in Venezuela recently. But there is -- there are fundamental trends happening in Latin America. And then one of them, probably the most important and not very correctly estimated. There are fundamental reforms taking place in the region, especially on the pension systems in Latin America. So key economies like Mexico, Colombia, Chile, Peru, they are changing the regulation of their pension plans and that basically speaks of higher -- increasing contributions by employees, by employers to the system. So this speaks about increasing the AUM in the region. And in addition to that, there is a change in regulation that is making more space for alternative investments. That's definitely an underpenetrated asset class in the region. Typically, the allocation of institutional investors in Latin America, pension plans or insurance companies, we are talking about 5% of AUM. With this increase in AUM coming from the pension reform plus some changes in regulation, this allocation is going to increase significantly. So for example, we see a significant increase in demand for alternative assets that Patria offers in Latin America or even outside of Latin America. And this is a very interesting opportunity that is taking place despite all the changes in currency, U.S. strike in Venezuela, so on and so forth. So this gives you an example of what we do and how we do research and how we help our investment teams. And of course, our shareholders as well to understand the investment environment around us. So this is my long introduction, but I think it's an interesting message to start conveying.

Thank you, Luis. I think just to maybe to set up a common ground and starting point for everybody. Maybe you can elaborate a little bit on -- give us a snapshot on what is Latin America, current main figures and its global relevance that we see nowadays. Maybe you can elaborate a little bit so we can set up a stage here for particular questions.

Definitely, Thiago. So what I'm going to do now, I'm going to share a screen just to show you -- the idea is not to go through a presentation, but basically to show you some examples of what we do. So what we have here is a snapshot of the region. Actually, in every country that we invest and even if you go to the sector, the 6 that I mentioned, we have to produce something like this, which is a summary of the big numbers and the most important trends. So for example, Latin America as of last year -- 2024, the latest number we have is a USD 7.3 trillion economy space, 662 million people living there. A lot of FDI inflow going into the region. I'm going to go back to this point, 7% of global GDP, 8% of global population, 14% of global net FDI. So this $196 billion that you see on your left-hand side is 14% of the net global FDI. And then you start to see something that differentiates Latin America from other regions. 8% of the global population, 7% of global GDP, but 14% of global FDI, that speaks of a region that welcomes long-term foreign direct investment. So let's be clear about FDI. FDI, foreign direct investment, does not include investments in bonds and stocks, which are considered portfolio investment. This is really long-term capital expenditures in new factories, in new assets. So we have to create new assets. So this is the FDI thing. But most importantly, in this region, the dynamics is in the very center of this chart, which is basically Latin America is an unusual combination of 2 things, perhaps unknown to several investors. It's a story of robust domestic markets. So this $7.3 trillion GDP, if you take the 662 million people that live there, nearly half of these people are middle class. This is the World Bank standard. The world average in terms of the size of the middle class is 31%. So this speaks of a deep domestic market. So a lot of investment stories and opportunities in Latin America are related to domestic demand, domestic market. So for example, in the 6 key sectors that we mentioned, health care and wellness, typically are domestic market story because you don't sell the exports of health and wellness are not meaningful. But then you have the second interesting story, which is in the bottom, which is natural resources. That's probably what most of people that get familiar to Latin America and the world, they are reach natural resources. That's true. So we have in the columns, the share of Latin America and global exports, for example, if you take the second column left to right, soybeans, Latin America is a net exporter of soybeans, $54 billion in 2024. This is 59% of global exports. If you combine the 2, it's a story of domestic market opportunities plus expertise in global commodities. So usually, when you are in emerging markets, you have either one story for the quarter. So either you have a big, big domestic market, for example, if you go to India, if you go to China, there are humongous domestic markets. There's lots of opportunities, but then natural resources are a bottleneck. If you go to Africa or some countries in the Middle East, if you're talking about oil and gas, the natural resources are there, but then the domestic market is not that developed. Latin America combined both. And that's the thing we like in the region, produces multiple investment opportunities, but also produces a kind of return if you find the right industry, the right player there, the right investment story. Typically, the excess return that you get in Latin America because of this combination is very little correlated and sometimes completely uncorrelated with the kind of returns you get from similar investments in other geographies. So this is an example of what is Latin America for us, the different things that we see that compared to consensus. And most importantly, the way we create value and then the way we do investment in infrastructure, in private equity, in real estate, in credit is exploring the opportunities, looking at this market space the way we are doing right now. Now I'm going to stop sharing.

Thanks Luis, thanks for initial thoughts. I think you mentioned in the beginning about the political environment in the region. I think we're seeing kind of a political shift from recent elections. Could you give us your view on the '25, '26 elections also to come and how it could benefit the region and Patria is the new cycle in the region? How do you see this and how we can actually work and get better results in this environment?

If you talk to Latin America, basically, you're talking about everything from Mexico down. So it basically does not include United States, of course, and Canada. If you take the election cycle in the region, it's been very active for actually a couple of years. It's important to stress, we are talking about 35 nations in Latin America, including the very small ones, of which 2 now are not central democracies at this stage, at this moment, Cuba and Nicaragua. Venezuela was not a central democracy, but that story may change. We can discuss this later on in this conversation. But all the other nations, there are central democracies, which means regular elections, and there are political changes and political cycles. A couple of years ago, we started to see a change in the region, starting with relatively large economy, which is Argentina. Basically, we moved from governments that have a very ambitious social agenda, environmental agenda, but the economic agenda was not that ambitious, was not that robust and then start to see a change towards market-friendly administration in which there is still a social ESG agenda. But clearly, the focus or the emphasis was to speed up growth, fight inflation to speed up investments, especially private investment that started in Argentina, but now we are seeing actually a wave in the region. So if I may just show another one slide, again, I promise it's not going to be -- I'm not going to do this all the time, but just to show the visual impact, I think it's worth showing. So here we are. On the left-hand side, we have the picture end 2024. Shades of pink, we are talking about this government with more social ESG, environmental agenda, more active or more ambitious and then shades of blue, purple are the governments that are more market-friendly approach. So the first change that we saw was Argentina. And then if you take the picture, as we expect towards the end of 2026, this year, we had already change in Chile, which moved -- it was pink on the left-hand side, moved to blue. Also in Bolivia, the Central America there elections also, we have now more market-friendly governments. There is this question mark in Venezuela. We don't know exactly. Definitely, the picture shift is not there. So there will be some kind of transition we may discuss. And there is Brazil elections in the end of the year. So the election cycle here is very clearly that the governments are getting more ambitious on the economic agenda. And part of what the market is liking in this conversation, we can show the asset performance is basically this slide, which shows you looking at the election cycles in this center in Latin America. The left-hand side shows what happens with public equities, stocks, right-hand side, corporate bonds. So basically fixed income but with a focus not on the government bonds, but on the private sector issued bonds. And then you see what happens before elections and after election, if there is a change towards market-friendly governments, that's the black line. If we have the orange line is exactly the opposite when the change takes place, but it's from a market-friendly administration into a more social active or state active kind of thing. So what we are seeing in the region because of the election cycle in the midway through the cycle in black. Stock markets in Latin America last year outperformed almost all the world. We talked about the MSCI, you see on the left-hand side, it was north of 50%, 5-0, last year in U.S. dollars. Also, we have 30% appreciation in bonds. So that tells you a story that in addition to the fundamental trends, the fundamental dynamics in Latin America that's different, there is a political change. And this political change because it favors market and private investment. We are halfway through this thing in terms of where the shark both on the left and the right side shows you what happens at minus 1, day minus 1, which is basically the day before elections and then what happens 90 days after 3 months, 181 days, of course, is 6 months and then 1 year down the road. So we are in the middle of the story, so cautiously optimistic that if we have more of the same in terms of political change, we are going to see additional asset appreciation there. So this is the importance of the election cycle in the region.

Thank you, Luis. I think despite the short-term election cycle that we are facing and this direction that you just mentioned, I think a lot of things don't happen in the region given all the regulatory framework and things that actually bring robustness to the market itself. I think you see some independent central banks, fiscal rules and so on and so forth. How these things actually are meaningful to Patria in a way as a local player in Latin America? And how does it relate to mid long-term investments?

An important thing -- thank you for this question. It's important to understand that doing investment in Latin America, not only now, but over the past 30, 40 years that what Patria has been doing, it speaks of dealing with volatility. So it's not because the regulators of the central bankers in Latin America, they are smarter than in the rest of the world, but the regulation in Latin America and the monetary policy is very, very strict compared even to developed geographies. For example, what happened during the global financial crisis, which was that essentially was the United States that was a classic credit crisis. And there was no spillover in Latin America. Latin America had 1 or 2 quarters of adverse economic growth that was an adverse shock. The contagion in the region was close to 0 because most of the asset mispricing on the lack of adequate reserves and the idea that you could do off-balance sheet investment that could not happen in Latin America because we had so many crises in the past that the regulation in the region was very strict and then the contagion effect coming from what happened in the United States was 0. But in addition to that, because we have also decades of very high inflation in Latin America, especially until the mid-90s the central banks are very, very hawkish in terms of monetary policy. So just to give you an example, the latest cycle of inflation pressure in the region that emerged after the COVID crisis. So everybody in the world had an inflation problem after COVID, but the reactions of the Central Bank was very different. So in Latin America, the Central Bank has led the cycle of monetary tightening. And by tightening, we are talking about interest rates that were never 0. So Latin America never had the experience of 0 interest rate policies. So interest rate in the lowest we had in the region was 2%. But then this 2% turned out to be 10%, 12%, 15%. So that's the -- how tough monetary policy can be when the Central Bank hit the brakes in order to combat inflation. So imagine if you have a highly leverage buyout investment story in which the cost of capital increased fivefold, sixfold. This is a full disaster. So there's no way to do this in Latin America. So again, not because we are smarter or more intelligent, just because of the regulation, the way the central banks operate. Capital markets are pretty robust, resilient in the region. And then what you have basically is if you have further evolution in fundamentals, for example, the recent government approving pension reform, so we're going to have probably more resources flowing into insurance companies and pension plans. So the AUM of the industry is going to increase. But as I mentioned before, it's still underpenetrated industry in terms of tapping on alternative assets. So there is room to be cautiously optimistic that we are going to have additional demand for private equity, for infrastructure, for structural credit or real estate that's going to be in a healthy environment. So amid interest rates, they are still relatively high. Inflation is trending lower in Latin America. Most of the countries are already having inflation within the targets. And that means that from 12%, 15% short-term interest rates, now interest rates are 200, 300, 400 basis points and lower, but there is still a lot to go for example. If you take the largest economy in the region, Brazil, interest rates are about to decrease or about to trend lower. We are at 15% short-term interest rates. The market yield -- the yield curve shows interest rates going down 250 basis points this year. But depending on the election cycle, remember the slide we showed, there is a question mark. It is more the same when President Lula achieves the fourth mandate, he is seeking reelection. Probably we are going to have this 200, 250 bps cut this year, a bit more next year. But if Brazil goes the same way the rest of the region and then we move to a more market-friendly administration in 2026 -- late 2026, early 2027, interest rates can go down significantly more. And then all the story that we mentioned, long-term trends going in the right direction, of course, it will be much more impactful and then everything that we said concerning Brazil in terms of the penetration of alternative assets, interest rates going down faster, probably growth acceleration is going to be even more impressive than we have mentioned so far. So our scenario is more on the conservative side, more of the same in Brazil. But the alternative scenario, the 40% probability scenario is something better in terms of market development. If the acquisition means that then Brazil joins the team of the group of countries with more market-friendly deposit, that can be a game changer. Again, not our base scenario at this stage, but let's keep monitoring this because it's going to be a very competitive election.

I'll bridge to our strategy in the region in a second. Just a reminder here, feel free to make your questions. We're happy to get your questions and elaborate on that. But bridging to our strategy, I think you mentioned cycles of high interest rates, high inflation. And although it's happening in the region, we continue to see a financial deepening, not only institutional investors, but also individuals as well. So how this -- we have a strategy, of course, in financial in the region outside has a very low penetration. So how do you see these cycles to come and how durable it is? And how do you see this phenomenon in the region?

So definitely, we have a deepening of capital markets in the region. It started not as a trend triggered by the major players. So the institutional investor, the pension plans and the insurance company, they were followers. It started basically with the family offices and people that have wealth and then -- because they see what's happening with alternative assets on the changes in capital markets in the United States or Europe, et cetera, they start to demand this kind of thing in the region. But then, of course, over time, if there is demand, the supply will show up. So we are in the process of deepening capital markets, diversifying in a universe of very high interest rates, it's very difficult to sell the appeal of moving into alternatives, right? So for example, if you're in Brazil, you can receive 15% in your government bonds. And in addition to that, the currency is depreciating 11% against the U.S. dollar. That's one thing is not that easy to sell alternatives. But looking forward, as we said, the yield curve in Brazil projects at least 250 bps of interest rate cuts. In addition to that, we start to see some interesting structuring of alternative assets in Brazil. So actually, Patria spearheaded or pioneer many of this in real estate and credit especially. So what we are seeing is basically Latin American following through the process that happened already in the United States and Europe 15, 20, 25 years ago. So definitely, you can say that now it's a relatively generalized movement. So the institutional investors that are the ones that write big checks, they are moving in that direction. We see this in our fundraising in the region clearly. And looking forward, given the reform that we mentioned, pension plans, et cetera, given low interest rates, given the spectacular performance of some of these alternative assets, I mentioned, for example, a very simple thing, if you go to structured credit in local currency, but then you calculate the return in U.S. dollars, we are talking about over 30% appreciation last year. So this is mind boggling. So definitely, the capital deepening in the region is taking place and at a much faster pace because the institutional investor, the ones that can write the big checks, they are doing that. So we see momentum. Again, it's very clear already in our fundraising efforts.

And I think that we have seen recently, right, inclination towards private credit, right? I think we saw that, of course, in the U.S. and Europe as well. And now it's happening in Latin America. So here in Brazil, just for instance, we have our FIDCs. We call it kind of CLO structures, financing working capital for companies, just an example. And you come to the client willing to invest in this kind of products to go from institutional investors to individuals. So it's -- I think it's a phenomenon that's also happening here on high interest rate cycles. I think credit emerged. And we can see it only on the FIDCs, but also on real estate credit as well. So I think it's a matter of the wider offering. It's also ready to navigate from different kind of types, right, in the region.

Yes. I'm looking at, again, our market intelligence, 2 things are worth mentioning here. If you look at the credit industry in the region, Latin America, especially the biggest economies like Brazil and Mexico, it's still old style financial intermediation in which the big banks they control depending on where you look at AUM or the outstanding credit, they're talking about over 50%, sometimes 60% are controlled by 3, 4, 5 big banks. So there is room for undercutting the traditional banks. So the debanking pieces in Latin America can take place because the market share of the banks is abnormally high for modern standards. So that's one thing where we are going through, it's basically trying to cut on the market share of the traditional banks. But in addition to that, you mentioned something that's also important that there is the financial -- new financial technology in the region is taking place at a surprising fast pace. So what we are seeing here is those new technological innovation we need to create institutions that are mostly digital, they can provide these new services or new products and they can service, of course, the institutional investors or the family office, but they can provide access to these new products, the alternatives. to middle-class people. So we have institutions, for example, in the case of Brazil, like XP, it is something that is hard to find in other countries. So these guys are able to cut through the financial intermediation and provide very appealing products, risk-adjusted. And the guys you can have, of course, there is -- they do the proper diligence in terms of investor profile, the risk aversion and knowledge of the market. But the guy now can access -- don't need to have a family office. They can access very good real estate alternative products and credit and also private equity and also infrastructure, et cetera. That's something that is really interesting and has to do with this new financial innovation with an awful lot of technology, a lot of this digital investing.

I think you mentioned 2 topics in the beginning of our conversation here. One is the pension system reform that's taking place in some countries in the region. The other one is about what happened in Venezuela and how all this Trump new way of dealing with the world is impacting maybe investment flows to the region, so on and so forth. Maybe you can start with the second one, elaborating a little bit on what happened in Venezuela, how does it affect the region, how it affect Patria's business in the region and how you see the money flowing to Latin America from the U.S. perspective, from Asia and other parts of the world that usually invest here in the region.

Okay. Definitely. So our take on Venezuela. There is this so-called Trump Corollary to the Monroe Doctrine, which is basically the American continent for the Americans, not for the Europeans or the Asian, et cetera. So we have now a practical example of what does that mean. So it's basically the United States reasserting its hedgemony in the continent, which means basically a very active program to reduce the penetration of other economies or nations or power that have seen us compared to the U.S. It's basically China, but also lower -- there was some penetration, some noise in the region coming from investments or actions from Russia and Iran as well. So we don't think that there is any meaningful similarity to what happened in Afghanistan or Iraq. So Venezuela probably going to be a very different story first because Venezuela has a very long democratic tradition. So Venezuela is actually one of the richest countries, full functional democratic system in Latin America until the mid-1990s. So the dictatorship that eventually emerged in Venezuela is an exception in the story. So Venezuela was a market country economy, not socialists, relatively robust institution. And then one President was elected that was Chavez. And because he got a constitutional majority in the Congress, he began to control. So the executive part began to control the Congress and then they took control of the judiciary and then the media, et cetera, and then we landed in a dictatorship, but now this is changing. So if there is mean reversion, if Venezuela can go back to where it was 25, 30, 50 years ago, so we can be cautiously optimistic. That's different from Iraq and Afghanistan that has no democratic tradition, no market institutions of solid market institutions. So probably the best proxy for what the United States is planning in Venezuela is what happened in Panama in 1989. So at that time, there was also a dictator. So the United States has to intervene, get rid of the strong man. The name was -- the gentleman was not Maduro, of course. It was Manuel Noriega. The guy was sentenced to 40 years behind bar because of drug dealing, et cetera. But then Panama became actually a very impressive success story in Latin America because GDP per capita since the strong man Manuel Noriega was out in late 1989, grew by nearly 160%, 1-6-0, whereas the whole of Latin America grew, take the Latin America region, real GDP per capita grew around 60%. So it's 160% versus 60%. So actually, Panama was a big success. So Venezuela can be a similar story. Definitely, we don't buy that Venezuela will become something like Iraq or Afghanistan, can be a very constructive story. And then -- but if you don't need to take at face value what we are saying here in this conversation, we can just go to the markets and see how they are reacting in terms of currencies, in terms of stock markets, bonds, year-to-date, remember, the U.S. snatching Maduro was January 3. If you take stock markets, currencies, corporate bonds, et cetera, the market is better now than it was like that. So there is no pricing of contagion and then things getting out of control in Venezuela. And then if I can show another slide, if you please just share another one, probably it's going to be the last one. So this is what I call extreme geopolitical risk. It's not calculated by us. It's actually a couple of guys from the Federal Reserve. You can see the reference in the bottom of the chart. So it's this Dario Caldara and Matteo Iacoviello. Basically, they map extreme geopolitical shocks. So what do we mean by extreme? We are talking about wars. We are talking about terrorist attacks. We are talking about conflagration, civil conflagration in terms of people dying or substantial currency depreciation or interruption of capital flows. And then the model uses artificial intelligence and then tracks from where these extreme geopolitical shocks are coming from. So basically, we have here Latin America, Asia Pacific, Europe, North America and Middle East and Africa since the end of the second world war. So you can see here easy to spot. Latin America is the orange line. If you take what's happening in Venezuela, there is an uptick in the geopolitical risk. But you are talking about Latin America as a region accounting for less than 2% of the extreme geopolitical risk. At this stage, the bulk of the risk is still Europe. It was worse before you see the peak in 2022, that was Russia invading Ukraine, came down and then getting a little bit worse. But the bulk of the global geopolitical risk, things that actually move prices, asset price significantly, they are taking place in Middle East and Africa. They are taking place in other regions. And in North America, there is this uptick here, not because exactly of Greenland or thing like this, is more a combination of what's happening in Canada and Mexico, which is part of, in this case, North America. So in terms of Venezuela, we are monitoring what's happening on a daily basis, of course. But given what we think is the road map of Venezuela, it's much more Panama than Iraq or Afghanistan. Chances are that 5, 10 years down the road, Venezuela is going to be a better story than it is right now. And then the final number here, I would like to disclose or trivia in terms of numbers. If you take GDP per capita in Venezuela 50 years ago, in the mid-90s,70s, it was 3x higher than it is today. So what happened with dictatorship? GDP per capita is a proxy for individual wells and how much income people have in Venezuela is 1/3 of it was back in the 1970s. So anything that gets a little bit better than that, it's a plus for the region. And then we already have a cautiously optimistic scenario in terms of growth acceleration in Latin America before the event in Venezuela. We are talking about a region that grew little 10 years ago. So the GDP growth was below 2%. We can have GDP growth going to close to 3% in 2026, 2027. There is political change. Some economies are clearly growing faster. Argentina, for example, is last year probably grew close to 5%. This year, it's something between 3% and 5% -- 3% and 4%, sorry. Venezuela, negative number, it goes to 0, it's a plus for the region. So Venezuela, again, is a shock is an adverse geopolitical shock, but it's a small fraction of what you see in other regions. And probably the odds of a positive outcome in Venezuela are not 0. Actually, they are substantial.

All right. Thank you, Luis, and thank you, Thiago. Very nice questions and thoughtful discussion. We do have some questions from the audience here. Let me start with the first one. I'll read it as it came. So Luis, can you discuss Latin America's infrastructure build-out, particularly as it relates to data centers? How large is the new build data center opportunity beyond Patria's Omnia ByteDance project in Ceará?

Okay. Thank you, Medina, for the question. So infrastructure is one of Patria's key investment areas. So we have infrastructure along with private equity, real estate, credit listed equities as well. Infrastructure, basically of the 6 key verticals that we mentioned before, 3 are very important for infrastructure, which are power generation and distribution, et cetera, with a focus on renewables, logistics and transportation and infrastructure and data and tech services. So clearly, infrastructure buildup in Latin America is key. Probably the most important fundamental trend or the fundamental dynamic in Latin America is it's the middle class society in Latin America. So the evolving demand of this middle class, when you are poor or lower middle class and you upgrade to middle class, your demand patterns change. So you tend to move away from public health into private health and move away from public education into private education, so on and so forth. What happens if most of the infrastructure, which is the case in Latin America, was provided by governments to state-owned companies. And these governments are now constrained by fiscal discipline or fiscal rules, and they cannot invest pari passu the demand. So we have huge gaps in basic infrastructure. And we are talking about power generation, we are talking about transportation. We are talking about telecom services, et cetera. So to understand the infrastructure dynamics in the region is very important to talk about a huge and probably the most ambitious program of privatization and concessions in the role. So we are very active on this process of privatization and more recently, concessions. So concessions, we are talking about toll road concessions, 30-year concessions, inflation adjusted or in some cases, you can have indexation to the U.S. dollar. We are talking about power generation, transmission and distribution that's becoming mostly private. In the past, it was public or state-owned companies, sanitation, water and sewage, so on and so forth. In terms of -- we are talking about in terms of actionable infrastructure thesis that you can pursue if you have, you can write a check, looking at 2026 to 2030, over USD 100 billion equity checks. So if you add some leverage, some project finance, depending on your ratio, equity to debt, the actual investment thesis increase twofold, threefold, et cetera. So in terms of lack of opportunities in infrastructure in Latin America, that's the problem you don't have. Of course, some of these projects, they have a risk profile that is closer to what we think that's appropriate for our investors. Some we think it's too risky or if they are not that risky, the return profile is not that good. But having said that, we are very constructive. In addition to that, remember, the exits or the opportunities to divest because of the deepening of the capital markets, you can -- in the past, basically, you could sell your infrastructure assets to -- once we stabilize your infrastructure, it become regularly yield generating, et cetera, you could sell to another electric utility or public utilities or a multinational that was arriving in Latin America or you could do an IPO. Today, you can do something different. The deepen of capital markets means that you can list -- you can use a fund structure, list the assets and then it becomes tradable and you start to exit through a listed fund. It's not when you need to go into the IPO necessarily or you have to sell to a multinational, et cetera. So we have more ways to exit. So this helps also the asset side. But then let me concentrate now on infrastructure, digital and the data centers. So what we have here and Patria has already a very successful venture in data center. We actually -- we create from scratch, develop a network of data centers, so sites in Brazil, in Mexico, in Colombia and in Chile. We sold -- we divested a very handsome multiple in U.S. dollars. And now the demand is still there. And actually, we are developing and starting the thesis all over again, but just to give an intuition about the size, the first asset that we have to do in the second generation of data center investment. The first asset, the capacity is equal to the combined capacity of the 4 sites we sold in the first venture. So this is how strong and robust is the demand for data centers in Brazil. Of course, the idea is not going to stay in Brazil. It's going to be again a regional platform. We're going to build up assets in other regions as well. And then probably the -- some attendees you may ask the question, but who -- where is the demand coming from? It is from the local economies. Remember, this is a middle class story, nearly 700 million people living there, middle class. So there is this pent-up demand, which is local. But in terms of AI and the usage of data centers, if you are not extremely strict on issues like -- technical issues like latency, you can provide, for example, AI is different from streaming. You can provide or can use these data centers as a backbone of -- for the hyperscales around the globe. It's not only in Latin America. So actually, these assets that we are now building and it's the beginning of a new cycle of investment in this area. The demand is coming from the rest of the world. And then, of course, we located our assets very close in Brazil, where the point the fiber cables coming from the United States undersea and Europe, of course, it's very close, so we can connect very easily. But in terms of the potential for this investment as it is right now and increasing significantly in the near future, it's there. And most importantly, and that has a little bit to do with geopolitics. We can definitely play with consumers and demand from several quarters of the world. So do we have demand for these data center services coming from the United States? Yes. And coming from Europe, yes, as well. And coming from Asia, yes, as well. So it's not the case that, oh, now there is a new geopolitics and then you have to pick size, either you service the United States or you service Europe or you service Asia, not true for Latin America. We are going to service everybody. Even with the new President Trump's Corollary to the Monroe Doctrine, we are going to service. Of course, it's a different proposition to say, no, are you going to have Asian nation building up a mega port complex in Latin America. That's a different proposition. But building up a data center or a network of data centers that good services can be provided worldwide, why not? So we are very, very constructive on especially these data centers with the vertical within the universe of infrastructure. But -- let's be clear here. There is still demand for the base infrastructure. So we are also moving into our first initiative into sanitation and water services. Our first move is a concession, long-term concession. Patria is doing this. And there is opportunities in toll roads, yes, there is opportunity on other basic infrastructure assets, yes. Desalination plant, for example, is something that we do, a very interesting project. We don't think that there is value added for Patria. For example, we are not going to go into mining to dig copper or lithium, but we are providing infrastructure services to the big players in the mining industry. For example, the most important operation of a multinational mining company in Chile that has this problem of water, climate change, they use this operation of this mining activity use to rely on natural sources of water, basically a river. And then the river flows start to get a more complicated issue and then they have to service the population as well. So the government of Chile decided that the priority should be given to the population, which is quite correct. And then the mining activity had to find the water in a different source. So it comes desalination plant. So we are doing this. We are talking about a big project, 1,000 liters per second capacity. We can double this, and it's became vital to this mining activity. Just to show you, it's a infrastructure, completely different from digital. But that's the way, for example, we service the mining industry. And then if the question is how do you play with the critical mineral things, that's the way we can help mining with a focus on critical minerals and other minerals as well.

Great. We do have some additional questions coming from the audience, and I would like to remind everyone that they can submit their questions through the webcast platform. Luis, you already touched base on this, but I'll read the question here. Maybe you can give more details. Do you think the macro scenario discussed, the renewed Monroe Doctrine can negatively impact the dollar inflows from Asian and increase inflows from the U.S. if it becomes a U.S. administration policy to encourage it?

Okay. That's a very good question. What we are -- let me tell what we think and actually what we are seeing from our LP basis. One of the major drivers of diversification into the region, there is this interesting story, a combination of middle class and expertise in commodities. But in terms of getting additional interest from investors, what changed over the past 12 to 18 months was the dollar depreciation globally. So interesting story in Latin America, but we start to have conversations with people that had exposure to Latin America want to increase and some of the investors that were happy with exposure to the U.S., the Latin America story was not that enticing for them. It's basically the dollar started to depreciate significantly. And then they said, okay, I need something different from the typical portfolio that I have, which is heavily exposed to the U.S. We don't think that this trend is going to change. We think that there is additional room for U.S. dollar depreciation. If you combine everything that's happening in the United States, yes, there is a very constructive and encouraging story in terms of technical -- technological revolution. This is artificial intelligence. But on the other hand, you have the trade policy, fiscal policy, now issues in terms of monetary policy credibility, the clash between the executive power and the Federal Reserve. So -- and in addition to that, if you do any calculation of exchange rate valuation, the U.S. dollar is still very expensive by any metric. So we are talking about at least 10% overvaluation looking back 25, 50 years, depending on your calculating -- can get to 15%. So there is room for additional depreciation of the U.S. dollar. So we see continued interest in -- actually greater interest in Latin America as a portfolio diversification story. In terms of the Asian demand, it's not slowing. I think it's important to say, perhaps there is a little bit too much focus on Asia, meaning China. At least for us, that's not true. So China is a key player and a key investor, yes. But in terms of the proportion of checks in proportion to the economy, the share of the economy, Singapore is very active, very impressive, highly professional investors from the sovereign wealth funds. But Japan invest with us as well and so does Korea, et cetera. So in terms of the Asian interest in the Latin America, we haven't seen any change. Of course, depending on the what was the kind of investment that China did in Venezuela, there will be a shock. But we suspect and looking at what happened in Venezuela, China was not investing more in Venezuela for -- actually for a number of years. So probably the slowdown of monies from China into Venezuela already took place in terms of what we see for our products, not only from China or -- but adding Singapore, Japan, Korea, there is more interest, not less. But having said that, are we seeing renewed interest from North American investors, U.S. and Canada? And the answer is yes. This interest was decreasing 5, 6, 7 years ago because the United States market was performing so well, there was not much need for diversification. Last year, the United States market performed well. It was not a terrible market until acreage was convoluted, bumpy. But after that, the market is growing nicely. The thing is just compare the numbers again. I think I can show again a slide -- I can show the numbers, but perhaps the visual impact is high. So what I'm going to do is to share again a slide. And then here it is. So what we have here on the left-hand side...

Wait, it is not on the screen, I think.

Sorry. Now it is?

Now you're good, yes.

Okay. Sorry, sorry for that. Left-hand side, listed equities measured in U.S. dollars, MSCI, the bottom of the same chart, fixed income. So we're taking the global corporate index by JPMorgan. So we are talking about U.S. listed equity MSCI, 17% total return last year. That was not bad and 6.2% return in fixed income, corporate fixed income, not bad at all. But look at Latin America, 54.8% return on listed equities and 33.6% return on corporate bonds. So this is what bringing Canadian American interest to Latin America. Okay. They saw the depreciation of U.S. dollar. They saw that Latin America outperformed. Problem there is -- we don't think that it's going to be the same performance in 2026 and '27 because it's impossible for a region to deliver 50% plus or 30% plus return. But the issue that these guys are having and discussing this a lot with them is on the right-hand side. This is the typical portfolio allocation of global investors and the exposure to U.S. dollars. The number is not ours, it's Cambridge Associates, which is also an investor with us. So they calculated that by mid-2025, a global investor typically had 83% exposure to U.S. dollar; in terms of virtual capital, 76%; in private credit, a 70-30 portfolio of stocks and bonds, 75% exposure; 66% private equity; and 64% stock. So our little theory here is that the typical global investors and even in the United States or Canada, they are still going to be overexposed to the U.S., but not at that rate. So if you trim 1%, 2%, 3% of the number on the right-hand side, if you sum everything you see on the right-hand side, is an estimation of the financial market assets, liquid like bonds and stocks and illiquid. They're talking about trillions of U.S. dollars, several trillion dollars. So any 1%, 2% that you reduce on the right-hand side and move into Latin America, well, we are talking about hundreds of billions, and then that changes prices in Latin America. So what we are seeing here is on the right-hand side, investors reducing their excessive exposure to the U.S. or U.S. assets. Again, they are not going to be neutral, not even underweight. They are just going to be a little bit less overweight in the U.S., but every 1%, 2%, 3% that they move out of the U.S. and Latin America captures a small fraction of this, you have significant impact on price because, of course, it's a much smaller market than the U.S. is. So that's what we are seeing in terms of portfolio changes, Asia and also United States and Canada. When we talk North America, it's the combination of U.S. and Canada because I think everybody knows the institutional investors in Canada, especially pension plans are very active and they're pretty big.

Interesting. We're getting to the top of the hour, but I think you can squeeze one more question from the audience here, Luis. Now I'll focus more on the local fundraising, saying more and more of Patria fundraising is coming from local investors within the region. How do you see local capital flows into private markets evolving in the next few years, both for institutional and individual investors? And what do you see driving that?

The trend is clearly upwards. As I mentioned, the economies are growing probably a little bit faster than they were before. So the economic growth per se gives you more room to increase your allocation to alternative assets. But you have these other 2 changes. So the reform -- potential reforms in the region, increasing more the AUM of institutional investors. But in addition to that, there are regulatory changes in which you can invest. There was a limit in some -- there was a cap on some countries and how much money you could invest in alternative assets because they were deem to risk, et cetera. Now this is changing as well. And then so what you see, it was a good surprise in terms of fundraising that we had in Latin America, the local fundraising even in an environment of very high interest rates, they were going down, but in absolute terms for international they were pretty high, the fundraising surprised to the upside. So we think more of the same is going to happen in 2026 and 2027 because we have the combination of low interest rates, a little bit faster economic growth. This political change and the regulatory framework is becoming more and more friendly. So in terms of this penetration, the deepening of capital markets, it's all there. The thing that we have to pay a little bit of attention and depending on the government, on the jurisdiction, this increased demand for alternative assets that we supply, sometimes it comes with some strain. For example, yes, you can invest more in -- especially if you are a pension plan, you can invest more in alternative assets, but you should invest in alternative assets that can help finance infrastructure in that country. That may happen. But then as we explained, we have a vast array of infrastructure solutions in Latin America, ranging from desalination plants to power distribution lines going into data centers, et cetera, we can easily fill this gap. This is more difficult for our international competition. So some of our competitors, very good companies, excellent managers, they have a more difficult environment because they can provide international assets to these investors in Latin America. But in terms of, oh, how can you help us invest in local infrastructure, that's more difficult for them. For Patria it is not. We are locals. We are local in Brazil, locals in Argentina, locals in Colombia and in Chile. So what's happening there, we can provide this solution. So we have the best of the world. So we're raising more money. And even in those jurisdictions you need -- you can invest more -- provide more assets or more solutions in terms of alternative assets, but you have to help the country in terms of local infrastructure, et cetera or develop the credit market. We can do that. For our international competitors, it's more difficult.

Great. We did start on time. So let's be mindful of everyone's time and finish on time as well. So thank you very much, Luis. Thank you very much, Thiago, for this very thoughtful conversation. I do still have some questions from the audience that we can reply. We will reply to you guys via e-mail. And yes, so thank you, everyone. And again, like have a fantastic 2026 for all of us.

My great pleasure. Thank you, Medina. Thank you, Thiago. I hope it was a productive session. And please count on us. There are other topics that we may explore by mail or we can schedule another session like this. For sure, we are going to have several interesting developments in terms of the investment opportunities and the investment environment around us. So it will be my pleasure to show up again.

Likewise, good to be here. Thanks for your time.

Thank you.