Patria Investments Limited ($PAX)

Hello, everyone. I'm Andre Medina, Shareholder Relations Director at Patria, and welcome to the fifth edition of our PA stocks a deep dive into Patria's credit platform. This will be a panel discussion. And if you have questions, please submit them, and we'll try to get through as many as we can. Of course, before we start, I have to read the obligatory forward-looking statement. So I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain, do not guarantee future performance and undue reliance should not be placed on them. Patria assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve risks, including those discussed in the Risk Factors section of our latest 20-F annual report. I also note that those statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any Patria fund. Okay. So with that, I'm very happy to have with us today Alexandre Cucino, our Partner and Head of Credit in Brazil; Carlos Gunderson, Patria's Senior Director, helping lead our Credit Investor Relations; and as the moderator, Rob Lee, currently Patria's senior adviser that I know a lot of you are familiar with. So to kick off the panel, I'd like to pass the word to Rob Lee. So Rob?

Great. Thank you, Andre, and thanks, everyone, for joining us and what I think will be an interesting discussion on private credit, which is in the news lately. So maybe a good way to start is, I mean, equity investors, I think, typically think of private credit as being monolithic. When in reality, private credit is highly diverse and when it comes to various types of strategies, product structures, targeted investors, I think tax credit form in that sense is no different in that the business may be more diverse than I think investors may realize, particularly following the Solus acquisition. Since both Carlos and Alex here represent different aspects of taxes credit platform. I think it's a starting point, and before we get into more detail, I think it'd be great if you both could take a couple of minutes to summarize the types of credit assets and structures managed in part by the pieces of the business that you represent, summarize that and very simplistically the products, the structures and the types of investors. Before we'll get into more specifics around market and TAM and opportunities. So guys, thank you for joining me on this. And Alex, why don't we start with you?

Thank you, Rod. So [indiscernible] it's interesting to mention that also I'm part of the investment credit committee of private debt funds for Latin America and also a part of the a member of the investment committee of Solis. So what do you do here in Latin America is really different from what you can observe there in the U.S. So it's much more, I would say, structured credit, although we do bilateral transactions, but the scope is a little bit different. Indeed, I will do the following. Carlos, do you want to go through these patients to explain because it's very clear in very transparent. It will be very helpful. Then I go in more details of the use of the transactions.

Absolutely. Alex, I start with that. Good morning, afternoon or evening, everybody. So today, across the Patria credit platform, we're managing about $12.3 billion. We mainly separate this sort of flagship strategies. The first one, the oldest one, which was launched in year 2000 is our hard currency high-yield strategy, that invest primarily in high yield bonds, performing bonds of Latin American companies. We've grown that strategy from $15 million in 2000 to over $5 billion and mostly to performance. So this strategy has returned 11.1% net returns per year over 26 years. So it's very impressive. Then 16 years ago, we started our local currency bond strategy, which manages about $2.3 billion at the moment. This is mainly a strategy geared towards local investors who most of the time have liabilities in local currency and want to match at a product that offers the pairing counter side. And then last but not least, we have what brings ourselves together today, private debt. We manage about $4.7 billion at the moment after the acquisition of the Solis platform. And in this part, we do both. So we do hard currency private credit and also local currency private credit to both the CLO platform, SMAs or funds. Alex, back to you if you want to go deeper into any of those.

Okay. Thank you, Carlos. So the structures and the final investments that we perform over Latin America, I would say that we do bilateral transactions as well. The major difference when compare to the U.S. market is deep, over collateralized. So the transactions tend to when do when we provide loans to the companies. We have a very broad and expanded collateral and I would say that typically it's absolutely of the transaction. So basically, it's much easier to execute these collaterals is much easier and faster than traditionally, it is a traditional loan. We do also a lot of securitizations in the form of CLO CDOs. And basically, what's their advantage because in this case, it's not collateral. We own the receivables. So if the company is filed for Chapter 11, 7 doesn't matter, the collateral is ours, and we are executing and receive the cash as the cash flows concerning that specific package of receivables. So that sold specifically is very strong in this front. And also, you do also the traditional asset-backed securities as well. So for example, a fleet of auto loans, so we have the -- we provide lending to the final buyer of the car. So we have this fleet of cars, we do for that for ships as well, for vessels. And because of that, our transaction is very resistant to the faults. And also another aspect that is different. We have a very extended coverage of covenants. We have a particularly very long list of financial and operational covenants that make our process faster. And finally, I would like to mention that another angle that is very important to us is that we prefer to provide credit to companies that naturally because of all of these that I mentioned to you, companies that are very heavy in assets. So for us, it's very difficult to provide loans to a service provider to a developer of software because it doesn't have assets to provide as collateral. So very quickly, that's what you do here in Latin America. Carlos, am I missing something here?

No, no. You said it all. And I would like to maybe summarize that the biggest or one of the biggest advantages Patria has in this market is that we can act as a credit manufacturer to basically assist companies or any type of credit they need. So then locally, we can lend in local currency, in hard currency and also privately or publicly. So we have different buckets in our strategies to basically accommodate that and find the best solution both for us, our investors and our counterparts.

Great. Thanks. I think that's probably a good starting point from maybe talking a little bit about the market TAM, the opportunity within the region, EMEA. Obviously, in the developed world, you've seen explosive growth pride of credit broadly defined, notwithstanding a lot of recent headlines around retail evergreen product for Dentons generally, you've seen very strong demand globally. And obviously, in the U.S. and elsewhere, the markets are more developed. So can you talk a little bit about -- obviously, credit in general, but private credit in particular, where are we within the region in terms of its penetration rate and its ability to grow and expand. And maybe also as part of that -- what's changing to drive that or not and the competitive universe as you see it?

Yes. Maybe let me start just to paint a little bit how the model looks nowadays. So if you think about the Corporate Solutions market in Latin America or credit market, it's a market that's in size is much bigger than most people realize. It's $2.3 trillion at the moment, where obviously, and the largest chunk is dominated by the banking sector. So banks represent about 42% of the market. And that's been inherently a blue chip, very constrained market, both by regulation and also because they have a great business, and Alex can touch on that in a minute, but they don't need to get very creative when it comes to offer credit solutions. So they have their playbook and they play by it. Then you have another very large market, which is the local currency bond market that represents about $700 billion at the moment, 32% market share. And again, very large corporate, high -- very high credit, mostly investment-grade quality market. So mostly senior unsecured covenant light. So they cater for the very large corporates seeking credit. Then you have the high-yield and investment-grade markets in dollars, which has been a very strong and novel asset class over years. But again, if you want to play in that market, you need to issue at scale. So normally, if you don't issue a $300 million, $400 million won't be in the indices as such, liquidity for those bonds is going to be constrained. And what this creates, everything I've said to now is that there's a very large, mid and small market that is underserved. So companies seeking to look for a credit solution, $10 million, $20 million, $50 million, $100 million. Don't have many obvious places to go look for those solutions. And that's where private credit has been doing its first steps. If you look at the chart here on the left, on the bottom, there's that tightly less than 1% private credit bucket, which is according to Preqin about $16 billion at the moment. So extremely small. And let me make a small comparison here. If you take the private credit market and compare it against the high-yield market in the U.S., this is all frequent data, that represents about 79% of the high-yield market. For Europe, 124% much larger. If you look at Latin America, the private credit market represents 5% of the credit solutions compared to high yield as such. We think that there is a runway of for this market to grow 20x over the last 20 years. So this is like investing in the U.S., private credit 20 years ago when it was just starting. And we believe that, that's an amazing opportunity. And that's, again, in a market with very low levels of leverage, where credit penetration is very low. So if you look at corporate credit event against GDP -- in Latin America is 40%, North America is about double of that. And Europe and Asia are almost 3x that. And even when you look at total debt, including households, credit cards, consumer goods, et cetera, those numbers are still much, much lower than in other economies.

Good point, Carl. And I would like to emphasize 1 of the aspects that you mentioned, consolidated dynamics in Latin America. Once again, Latin America has this history of high inflation, and we learned how to fight for a high inflation a long time ago. And fortunately, it comes back time to time. And because of that, the central banks, they are very fast and aggressive in increased interest rates whenever is needed. And that's the situation, for example, in Brazil. So LTM, last 12 months, I would say that the real interest rate is something similar close to 10% real return. So 10% above inflation and if you imagine that you have a bank. So basically, this bank can buy government bonds with a 10% real return. And naturally, a bank is leveraged so the banks, although the LatAm air banks, they are really good, they are very competitive. But they don't have to work really hard to have a really good return on equity or return on assets. And because of that, it creates opportunity. Basically, we complement the banks, and we fulfill some blank at the banks, they cannot provide credit because of regulation, Basel III, for example, in the case of the U.S., American banks with local presence, vocal. They have some limitations that the private credit fund don't have. And that's the reason that we have such goods in interest opportunity in Latin America. And because of that, I really believe that the opportunity that we're facing Latin America is the same opportunity the private credit market faced around 2008 and really started this, I would say, this market there. That's the reason that we have a very interesting return and we have a very interest package of collateral and covenants. And we don't have that much competition because there are a couple of players. But as you can imagine, Latin America, it's difficult to invest from New York. So you have to have a local presence. So we do have office in Brazil in Sao Paulo, in Fortaleza in Argentina, Uruguay, Chile, Peru, Colombia. So it does make a lot of sense with this local capacity to originate to the maintenance of the portfolio. And this creates this opportunity in that dynamic mix, our investment process, very different from the process in the U.S. And something that also is important to mention that we have a private equity DNA. And what does it mean? It means that our funds are long-term funds, the close-ended fund. So you don't have this mismatch of assets and liabilities. Our funds really -- all of them, they are long term when we invest in private debt. Usually, they are closer in the funds with capital calls. So it's another difference that is very meaningful when you compare to the U.S. market.

Great. One -- maybe a couple of things. I think it's worth maybe drilling down a bit. One is in talking about the differences of the private debt markets in the region versus the U.S. and globally is -- number one, the normal absence of direct lending in the region, if you touch on that a little bit, number two, based on what you said and conversations we've had in the past is 1 of the concerns in developed markets you read about is covenant-light of a lot of picks and portfolios and concerns about the general overall protections going down? And maybe diving into those aspects, why or how you think the why there's something different or unique about the covenant structures that you have in the region versus what we read about in the rest of the world. I think those will be 2 great rabbit holes go down. And then after that, we'll come back. I would like to talk about well, what investors are you sitting? Are you seeing more global investors coming into the market and different strategies? Are you seeing it expand locally as well. So Carlos do you want to start?

Absolutely. Yes. I think when you think about, let's call it, developed markets, direct lending, because of the after some different players we see in those markets, in our opinion, that market is primarily enterprise value-based relying heavily on covenants, but also sponsored support and quite broad security packages over operating companies. In contrast, when you look at LATAM, private credit here is much more structurally driven. So what features our different transactions here is very hard collateral, as Alex said before, pass flow controls through sale of receivables and [ Bankomat ] structures and very important and this meaningful difference with amortizing profiles. So this results in protections that are less dependent the enterprise value of the business, but more on the contractual cash flows that we can capture to our structuring. So a different way of looking at it is in developed markets, collateral often supports a restructuring in Latin America, the structure is designed to avoid needing the restructuring. So we always say our mindset when we face an opportunity and we analyze the opportunities at the end of the day, one point more or less on IRR is important, but it's not our driving force. Our driving force is our structuring first mindset where we basically spent a lot of time making sure that -- the thing we're creating -- the structure we're creating works for us, works for the company, and we are protected in case something happens because we know -- we operate across many different margins in the regions, different industry, different dynamics. Different central banks, different currency sometimes for the different businesses. Something can happen and something can happen to the companies. What we need to make sure is that nothing is going to happen and our structure is robust enough so that we can fulfill our goals.

I just want to say this may be a time question, sorry, Alex. But at the risk of maybe overstating it, do you think this characterization is correct. But I think of say, the U.S. was -- private credit was really predominantly direct lending driven. And now in the U.S., they're diversifying into other types of private credit, whereas in the region, you never -- there was no direct lending to speak of. And so you immediately started in a place where maybe parts of the rest of the world are migrating to in terms of structure and being driven outside of the LBO market. Or is that stating it?

No, no. But there's a few points there, and Alex is more local than me in a few of them. But I would say that because of the structure of the companies, in Latin America, I want to say the vast majority of companies are still family owned. So these are families that built, created crudes companies. These are families that have their wealth. They have created over time. So they're very conservative. That, coupled with the environment where we live where there's less access to credit, scarcity of capital compete at the end of the day, showcase much lower levels of leverage than 1 which you find in other places. So if you look at Latin America, I think the high-yield market is 2.6x. Net debt to EBITDA in the U.S., that's 4x, 5x, depending on segments. So companies are very conservative when it comes to that. And as such, there's way more space to do things and lend money and also not having a sponsor by company because the LBO model failed when they try to implement it in Latin America. That's a pattern in the private equity verticals follows a buy-and-build model, right? But having that more conservative approach allows you to have better structures and more protection.

Yes. I'd like to emphasize 2 points as Carlos mentioned, 1 that's concerning the covenant and it's interesting because -- we are very -- it's strange, but it is true. We are very happy when a company creates a covenant and why it means that we were -- we are very close to the company, and we can monitor the company -- and it doesn't mean that we will necessarily charge a waiver fuel or something like that. It's the minis, it means that we have the right leverage to negotiate and we are close enough to the company to do something if it's necessary. So that's one of your initial questions well. In the second topic concerning the entrepreneurs in Latin America and is fascinating is something that I love to start due diligence with a new businessmen. And also is very different than in the U.S. here. In Brazil, we are providing profit that with the traditional families not for the new pack companies that they are working AI, et cetera. No, it's a traditional company with real assets first or second generation typically. And with the owner that 70 year-old guy that face of the crisis that you can imagine among the globe, that's not the first -- it's not the first war and it's not the second war that this guy is facing. So he will try to be as conservative as possible and it's curious that when you talk to U.S. investors that we are providing a private debt transaction that the company is 3x net debt to EBITDA, the capture price -- but that's our average company that we are providing direct lending. So it's very unique and very fascinating when we're dealing with these entrepreneurs that creates the company that they love the company and because of that, they are very perfect the negotiation at the same time. So and they accept to be very tight covenants but they will not do that anyway. So it's interesting.

Maybe talk a little bit about your investor base, okay? So obviously, some of our some of the products are dollar based, some are local. So I think may be interesting to talk about how maybe that's evolved over time, maybe with shifting regulation or as pay itself is maybe try to leverage its relationships. Can you talk about changes that you've seen and where you think it's going as importantly.

Yes. Well, obviously, at the very beginning, this was -- our client base was dominated by local players, pension funds, insurance companies, large family offices. For them, this has never been sort of a satellite investment. It's core. It's very close to heart is something that they can relay is something they understand. So that was originally our bread and butter. I would say around global financial crisis, we started expanding that and catering for more sophisticated investors across the world. And what you see today is that a very material portion of our client base is pension funds in North America, global consultants, Middle Eastern family offices and institutions, insurance companies. So it's very wide, and it was part of an [indiscernible] process of not looking at Latin America a tactical allocation as an opportunistic allocation but to really drill down and understand that there is a very meaningful risk premium that hasn't been priced correctly by the market, in our opinion, and that has generated consistent alpha over time. So when I say that our high yield fund has delivered 11% per year, that's 370 points above the benchmark. It's not by TAMs. It's because there's a repeatable alpha to be caught because the spread that those issuers are required to deliver. It's not justified with the underlying risk. And sorry, broadened to more institutions across the world. We are, at the moment, raising our Fund II on the hard currency side. And almost all of the advanced prospects that are in did dividends right now are Northern Hemisphere or developed market institutional clients. And the transformation this dynamic of global investors with local investors. And we have access to the most of scaled global investors, including development agencies specific strategies. Although it's important to mention that the return is key always -- it's not only a matter of E&S impact, positive impact that always is natural to us to be concerned. So it's natural to partner with them as well, but the return is key. But in the local markets, it's the same dynamic. We have a very good, strong and close relationship with the most sophisticated local investors. Delivering of local return that's naturally, we are very concerned with the balance of asset liability management in all aspects concerning liquidity and also currency and that's the reason that it's very important also to have a local presence with local investors.

How I mean given the persistency of Alpha, Carlos, in your business, normally, you would expect that kind of alpha over a long period of time will attract competitors or whatnot. And it will drive down the return profile. So whether it's has your part of the business or Alexandre are there some structural things that in your view, limit competition? Or do you think it's just -- there's so much opportunity, competition comes in and there's still excess returns to be had. How do you think of that impacting the competitive landscape.

And I would say that the key factor here is the people. this people business. We have a very large credit team. If you count the Solis platform, we have over 110 credit analysts just covering Latin America. That's unheard of. So having puts on the ground being local in the markets where we operate, as Alex said before, having offices in Sao Paulo, in Fortaleza point of size in Monterrey and Santa Limin Colombia, et cetera. That gives us access and an opportunity to unlock value where most people simply don't have the knowledge. So imagine you're a big asset manager in London. How many people do you dedicate to cover Latin America? And how much debt can you gain -- so I think people makes a difference. We invest in our people. We develop our people. Leadership has been there since day 1. So in all the strategies I've shown the people who launched that strategy. It's still on board. So we have had portfolio manager turnover historically in the credit vertical. So that acquired and held talent and knowledge is key because this is going to sound or pricing, but most of the when we engage with clients, it should be the business. As people we have been doing business before we landed to them, sorry, in local currency, in dollars or privately, but it's people who know. So I think that's the biggest difference and what has limited competition over time.

Maybe it's a good time. I don't know if, Andre, if there's any questions from the audience [indiscernible]?

Yes, there is. [Operator Instructions] I'll read them. The first one, as for both Patris Private Credit Fund I and the Cielo business, you talk about Patria's proprietary origination capabilities.

Want to talk about the that one? I talked about [indiscernible]

Absolutely. You want to start or?

Okay. Let me get -- so on the Private Credit Fund I, I would say the marine bilateral transactions. So transactions where we are discussing with the company a credit solution, if it's not done with us, it doesn't get done. And in some cases, we have been part of a larger negotiation. We also have done a couple of secondary there. So those were very opportunistic, interesting transactions that have been prepaid and made also have been very accretive for the portfolio. I would say that due to what I mentioned at the beginning, the middle market, that's a bit forgotten because either large players are not going to look at a $50 million transaction or a $40 million transaction in the region. And there's not that many sources of capital. We have the advantage of looking at them first and being able to reject or go ahead. And so since we launched Fund I in 2024, we have deployed the strategy $800 million. But that comes after we looked at almost $23.5 billion in deal flow in that same period. So that's about 2 years. Those were 35, I think, opportunities we looked at. So that's a yearly rate of about 150 deals for $14 billion, $15 billion per year. remember, the size of the market is $16 million. So there is a very large need of capital that comes to us. We analyze it. We make sure that everything is in place. Is it the right yield? Do we have the right protections? Do we understand the business enough? Can we create an SPD where we can capture flows before they float into the company. If all of that is yes, we can pull the trigger and structure something. But yes, I would say that the vast majority is proprietary negotiated.

Yes. Let me talk about the CLO CO business. Let's split in the dynamics of solids in the dynamics of the traditional part credit business. So concerning Solis, it's important to mention that they are very strong in the factoring business in class, you say, in Portuguese. So it's out of electable loans from individuals, that work with government entities and also in the private sector. And it's important to mention in these 2 major industries, although they invest all kinds of CLOs, CDOs, but these are the 2 most important line of business. A lot of these originators of receivables, they are in the market for some time, but some of them, they are not that huge yet in Brazil. And Solis basically, the provide funding this [ sodigenator ] of the receivables since 0 since a very small portfolio of receivables. And because of that, this origination naturally is on. You don't need someone analysis and also would be almost impossible to have someone else originating this kind of transactions to you. And the volume -- we are talking about a volume of between and $6 billion more or less. And then we have the traditional private debt transaction that we are including CLO DOs. As I mentioned, it makes more sense to talk about structured credit in this case, but anyway, and this dynamic is a little bit different, although also, we originate 60%, 70% of these transactions, but from some of them they are syndicated with other institutions, including banks. And the difference is that in this line of business, basically, we are investing with very traditional players in the market. So we are talking with a factory business that has -- they have a 20-year experience 30 years experience. So they are very mature, and they are issuing their own CLO, CDO rulens for years since the inception of the Brazilian regulation about this line of business. And because of this dynamic, they can originate their own, but we structure by ourselves, and we do have relationships directly with them. But sometimes we have to do [indiscernible] these transactions. But once again, in this line of business, we are talking about 67% origination for CLO, CDOs in the traditional credit for Patria.

We do have a few additional questions here. The second one says the U.S. private credit has become more and more competitive with the structure and terms increasingly border friendly. Could you talk about the TIBCO structure in terms of deals in Patria's private credit funding?

Yes, can you answer second I'm going to share a slide just to showcase what we've done here. One second, so yes, we have the same opinion. And it's important -- sorry, then go. Here, we have the 14 transactions. There's a 15 now that I haven't included yet. But when you look at direct lending in the U.S. I would say that the majority of the things you see on the covenant targets and corporate guarantees are there. So the first group columns you see on this very busy chart. The added value that we can consistently add in Latin America are called columns. So the owner guarantee, the shares, the real assets, the cash flows, the true future of receivables and bankruptcy remote structures. I think those are very unique to what we do. and the objective of creating these structures is that we ring-fenced cash flows. So for example, in the telecom, the first line there, the banked what it does, it captures both the monthly payments of the users of the cellphone plants in Chile, plus the handset, the mobile phone payments. And that goes into the structure. And we have over a onetime coverage of the entire credit facility we provided for this company on a monthly basis. So once we see that, once we have captured the cash flows, those get released to the company. But if anything ever goes wrong, we can basically without need of going to a judge or engaging in a very time-consuming judicial process, we own the trust. So we have direct access to those cash flows, which is massive advantage. And something I mentioned before that we insist in most cases is to have amortizing structures. So we don't want to face any -- or minimize the refinancing risk. And this also provides you the opportunity of being close to the company and identifying problems earlier. So when you have a debt that's amortizing, they have to pay interest plus principal on a quarterly or semiannual basis, you can identify problems very early on and address them in time and not wait to the last day to basically be surprised by a breach or a refinancing problem that you don't foresee.

Yes. I would like to emphasize what I mentioned before. We love companies that breach covenants in. So basically, usually, we have a very long list of all kinds of carbons that you can imagine. Naturally, there are some lines of business that is even tougher. We also do project financing our infra credit funds. And as you can imagine, we have a collateral everything shares we have the assets, the contracts, the cash flow, the bank accounts. So basically, something gets grown, we can assume the company and sell to someone else. And also we have technical expertise to do that if it's necessary. Unfortunately, we used these covenants in these tools in the past. And very quickly, we solve the problems I have a couple of experience that before the company managed to do -- to file for Chapter 11. We managed to execute collateral to get the cash and to leave the company. And something that is unusual for CLOs and CDOs in the U.S. and here in Latin America as well, but it's very common to us to include covenants related to the seller of the receivables in. So usually, we have only covenants related to the securities to the receivables. But we include as well the concealed companion to move faster. We would try to move as fast as possible something that gets wrong inside the company. And that's the reason that basically when we put together in venture or collateral agreement or something like that, we have hundreds of pages of documents in order to have as many tools as possible to execute and leave the problem as soon as possible with our cash back. So it's very detailed. And we haven't seen a deterioration of this package over the years. And because these markets in Latin America is really different and a lot of players that are trying to invest from London, from New York and you have to have a local presence with in order to move fast. We have to be local being talking directly with the owners of the company very frequently to have the feeling if some things go wrong, to help the company when is the case and once it's too late to leave as soon as possible.

Maybe just to reinforce something we have said, Alex, we have access to a multi-layer approach to company. So Alex Fernando Javier, these leadership of the company. They talk to the owners. They talk to their families. Then our Co-PMs, they might talk to CFOs to the Investor Relations analysts, they're speaking with the analysts in the respective companies. So that multilayered approach allows us to tech consistency and be very close to the company. So I understand exactly what's going on. Because remember, these companies we invest in, sometimes in developed markets, they are small companies in the middle of the naval industry that are not very well known. In the case of Latin America, usually, we're dealing with the leaders of each sector. So we're dealing with very large corporates with very good and established business that need a credit solution that we can fulfill and just going back to the structuring something I didn't mention before that it's quite important for Latin America in hard currency. So that applies for our private credit fund on and soon to come up to is that we and fixed. So these are mostly fixed rate loans. So we are able to lock in a very good interest rate at the moment and are not floating as they are in mostly in developed markets.

We do have a third question here, which is about our Latin high yield outperformance of this strategy. So it says, could you talk -- could you walk through how Patria's flagship credit fund outperformed the benchmark by 370 basis points net per annum for over 20 years.

It's 26 years, but who's counting. Look, we launched that fund in the year 2000. It's been led by Fernando [indiscernible], Head of Credit, since day 1. And if you ask him, he's going to say it's a very simple business. It's lend money to good corporates with good contractor features, read everything and pricing is key. So we might have a lot of position in that fund. But at the end of the day, it's also very concentrated. So the top 10 positions usually represent about 40% of the portfolio. the top 20, it's about 60%. We're not afraid to get our hands steady when there's a problem when a company is facing some issues and the bonds are trading downwards. If we understand the company, if we think that the price is an event and not sustained loss of their capacity to fulfill the debt. We might buy on the downward stream getting both in the restructuring. And that has been one of the levers we can apply that has been very unique. So about 5% or 6% of the portfolio, [ ASIS Special Seats, ] which is interesting. But at the end of the day, the vast majority of this portfolio is performing bonds that yield and the default rate has been very low. We have managed to avoid the bad situations by being close to the companies and by having a team that basically does the job and avoids the defaults. That's been the main driver of performance.

As I say, I know we're coming up towards the end, but I didn't have a question just maybe for Alex, and this is talking about the fade market and structured finance. Can you talk a little bit about -- I mean, it's just growing market as demand oftentimes, you see kind of business that maybe banks would be interested in or not. But can you talk about maybe the regulatory and banking environment in the region, how that's impacting growth in leasing that part of the private credit business and kind of what are some of those kind of macro impacts?

We're going to start to call and I get. I don't know Carlos, can you hear me?

Yes.

So concerning the regulation in Latin America in general and the global regulation for banks, I would see that it creates a very interesting opportunity and specifically in the case, for example, of CLO CDOs have seen a lot of banks that's doing the calculation of capital allocation in order to optimize return on equity they cannot buy a mezzanine tranches of securitizations. And when they buy in transit capital allocation, it's much better than by an equivalent risk profile. So they are moving to buy senior tranches of securitizations. So it's a good partnership that we can do with Latin America bank. So we buy the mezzanine. But in order to do that, we have to know very well the portfolio, the origination. We define the investment criteria of the CDO CLOs. So it's creating a good opportunity to us, at the same time, to invest in illiquid assets and long-term assets always naturally matching assets with liabilities matching the funds. The capital allocation for the banks is extremely negative for the bank. So it creates opportunities to us and sometimes, we are long. Sometimes we are syndicating with banks. Also concerning technology, so technology getting easier and cheaper. So once again, for securitizations, helps a lot to make a very robust and transparent and being able to monitor a portfolio of receivables and as in securitization or as collateral for transactions in both the structures and it makes the risk return profile better. So I would say that we will see a lot of potential in Latin America. And all this noise that we are observing now, globally speaking, is positive for the business. So we are able to eat very good opportunities, investments and creates opportunities where a lot of people see challenges, and we are deploying capital with a very good risk return profile consuming collateral concerning colons once again in return naturally. So the perspective for Latin America is extremely positive for private credit in general. Locally or globally speaking in Latin America. Am I missing something here, Carlos?

I think you said it very well. And at the end of the day, we are not inviting people to sell older developed market credit or private exposure and get into this. But we think this is a fantastic complement to what you already have. So we all have seen what's the challenges faced by the industry competition in other pockets of the world is very strong. And this is a market that's space that the first movers will have an advantage and will capture more of the upside. But I always ask a question to clients. Like if you could traveling time and go 20 years back. Could you invest then in U.S. private credit when it was the innovative people who are doing it. And the answer is mostly yes. And my answer is, well, then Latin America, it's starting with the advantage that we've seen that market developed. So we have learned from their mistakes. We can anticipate some of the things that will happen in this market is as it evolves. And we have the platform. We have the people. We have the technology to address the opportunity to move fast and to allocate capital at a very, very -- with a good alpha proposition.

I would like to emphasize these aspects. So for example, we learned from the mistakes of the developed markets. So for example, 2008 was a very meaningful benchmark and we learned a lot. So that's the reason that we haven't seen the same mistakes in Latin America. So from 2008 up to now, basically, we became that because the regulation in those countries improved in observation of what happened in the U.S. and also technology. So basically, we are investing in the same kind of instruments, but with the current technology. So it makes a huge difference to avoid fraud or credit wrong analysis, et cetera. So it's a good point that comes.

That's great. I think we're just about out of time, Andre, I don't know if there's anything else from the audience? Any last questions?

So no additional questions from the audience at this time. We just think this was a very, very valuable discussion. Thank you [indiscernible] Thank you, Carlos. Thank you, Rod, so much. And I don't know if you guys have any closing remarks. So Rob, if you have any additional questions that you want to wrap up.

No. I think we got most of them. I'm sure if anyone out there has more questions, they could pass them through to Andre, and he will pass them along to Carlos, Alex or myself as the case may be. And I just want to thank everyone for doing this. I think it was very helpful and interesting conversation and look forward to more of these in the future. Thank you.

Thank you all. Thank you for the opportunity.