Vinci Compass Investments Ltd. (VINP) Earnings Call Transcript & Summary

Good morning, and welcome to the Vinci Partners Investor Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to turn the conference over to Anna Castro, Investor Relations Manager. Please go ahead, Anna.

Thank you, and good morning, everyone. Thank you for joining us today to hear more on our transaction of Compass. Joining today are Alessandro Horta, Vinci's Chief Executive Officer; and Bruno Zaremba, Private Equity Chairman and Head of Investor Relations. We also have Compass, Chief Executive Officer, Jaime Marti joining us today to complement our remarks and answer questions during a Q&A session after the presentation. We issued a press release and slide presentation covering the transaction, which are available on our website at ir.vincipartners.com or on Form 6-K filed with the Securities and Exchange Commission. I'd like to remind you that statements or comments made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to financial projections and other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. We do not undertake any duty to update these statements. Also note that nothing on this call constitutes an offer sale or solicitation of an offer to purchase an interest in the Vinci Partners or in any Vinci Partners or Compass Fund. With that, I'll turn the call over to our Chief Executive Officer, Alessandro Horta.

Thank you, Anna. Good morning, and thank you all for joining our call. I'm thrilled to welcome you to this landmark event as we announced our combination with Compass. This transaction marks a significant milestone for us, and we could not be more enthusiastic about the opportunities it presents. This transaction opens the door to a groundbreaking chapter in alternative asset management in Latin America. As we combine our companies, we are not only expanding our reach but also solidifying our position as a comprehensive full-service player capable of serving our clients and investors across the entire product spectrum. We are structured to deliver country-specific in Pan Latin American investment strategies across the alternative space from local capital to local investment opportunities local to global, global to local, and global to regional. This means access to markets, investment opportunities and most importantly, access to a diverse range of investors on a local, regional and global scale. Additionally, the combination with Compass marks a significant expansion of our geographical footprint. We are proud to announce that our company will now have a presence across 8 countries and over 2,500 regional and global LPs truly establishing ourselves as a pan-regional platform. Not only are we expanding geographically, but also greatly in terms of size. The combined platform will boost more than $50 billion in AUM. This move is not just about the present, it's about the future. It's about acting on what we have been conveying to the market over the last 3 years since our IPO and more recently, during our Investor Day. We firmly believe that Latin America is one of the most compelling regions globally for future growth and increased penetration for alternatives. And today, with our combination with Compass, we are taking a significant step in strengthening our position to capture this opportunity. We aim not just participate, but lead to be one of the regional winners in this dynamic landscape. In our ongoing discussion over the past years, Vinci has been actively exploring avenues to extend its footprint in Latin America. The region boasts a GDP exceeding $6 trillion supported by a population of approximately 700 million people. Latin America is home to more than $3 trillion in assets under management with less than 5% allocated to alternatives and it stands as the second highest projected region for growth globally over the next years with an anticipated 32% increase in AUM from 2022 to 2027. This underscores the substantial economic position inherent in Latin America especially for alternative investments, making it a strategic focus for Vinci's expansion efforts. We are establishing a leading pan-regional alternative asset manager with our first class diversified product offering with all major strategies across the alternative scope where local, regional and global investors can find a full suite of products and coupled with outstanding distribution capabilities with a combined client base of more than 2,500 LPs across institutional and high net worth investors. We will have solid relationships with all the relevant institutions and high net worth investors in the continent to boost growth and cross-sell products. But what does this mean for our shareholders? It means immediate accretion on an FRE per share basis, more growth prospects and a more diversified asset and funding base. We are committed to delivering value, and this transaction underscores that commitment. Bruno will go over the financial aspects of the deal in more details in a few moments. Before I conclude my remarks and hand the call over to Bruno, I would like to leave you with what we believe are the key takeaways from this transaction. First, we are expanding our AUM to over $50 billion diversifying in strategy, geography and funding and thus consolidating ourselves as a leader in the continent. Second, the combination will expand Vinci's geographic footprint now with offices in 8 different countries. Third, we will leverage on Compass unmatched distribution platform to consolidate Vinci as the gateway to alternative investments in Latin America. We offer local and global clients, the full spectrum of asset allocation alternatives covering local, regional and global solutions. We will tap on every single opportunity and become a full-service firm. Fourth, as I've highlighted before, Vinci and Compass share a strong cultural alignment. This will work as the foundation to a successful combination when we think about the long run. And at last, the transaction is immediately accretive to Vinci's FRE per share, and we believe there is significant space future growth through synergies in revenues and productivity enhancement that should boost long-term accretion. Today is just a beginning of exciting journey, and we are thrilled to have Compass on board with us. We have every confidence that Compass is the best partner for us to achieve our long-term objectives. Their extensive track record of consistent performance, brand recognition and outstanding reputation make the difference in our pursuit of excellence and leadership in the region. Together, we are poised to redefine the landscape of alternative asset management in Latin America. I'd like to thank you for joining us again. With that, I'll turn the call over to Jaime Marti, Compass CEO, to add his remark, and then we'll move on to Bruno to cover the transaction in more details.

Thank you, Alessandro. Thank you so much. We are incredibly excited to announce our combination with Vinci. A company that we deeply admire and respect. We have been talking about this potential combination with Vinci's senior team for the past 2 years, which led us to get to know each other better and have full alignment on which are the best opportunities to pursue as a combined company. During this period, we were able to find very similar features in how each of our firms was built and developed. The culture alignment we have and the common view we have for how to continue to develop our businesses. As we moved along in these conversations, combining our businesses became a natural step forward, and we're very excited about this new journey together. From the very beginning of the discussions, it became evident that Vinci and our team shared a strong cultural alignment from our partnership culture to our attention to clients and their investment needs. We, at Compass, have been actively building relationships with institutions, intermediaries, family offices and high net worth clients in Latin America for more than 25 years. I am proud to say that our team as perfected the art of selecting the best global asset managers for our clients, being recognized as the #1 placement agent in Latin America of private capital products according to Preqin and a leading global investment adviser and asset manager in the region. This transaction is a perfect fit for us as it is highly complementary. By joining forces with Vinci, we can access our vast network of investors in Latin America, and we'll be able to offer a broader range of solutions across the alternative space, leveraging Vinci's diverse set of investment strategies. And also, we will be able to provide access to world-class managers and offer global and regional solutions to Vinci's broad client base in Brazil. We also share the same long-term vision building a comprehensive platform, a leader in alternative investments across Latin America, catering to investors on the full spectrum of asset allocation. Together, we will offer best-in-class solutions to local, regional and global clients across asset classes and geographies. Looking ahead, I'm incredibly excited about the future. Together with Vinci's management team, we will be working closely to capitalize on the numerous opportunities that lie ahead for our combined company. This marks the beginning of a promising journey and I'm confident that together, we will achieve great things. Now I'd like to hand it over to Bruno, please go ahead. Thank you.

Thank you, Jaime, and good morning, everyone. I'd like to provide additional details about the transaction. Throughout recent years, we have been proactively seeking opportunities to broaden our geographic reach and became evident that Compass stood out as the best choice. Compass is a leading independent asset manager and investment advisory firm in Latin America, boosting a formidable presence across 7 countries in the region as well as presence in the United States and U.K. supported by a team of 20 seasoned executive partners. Their success is underscored by our leading and differentiated platform in LatAm with an impressive portfolio exceeding $37 billion in assets across 3 of Vinci's core businesses, IP&S, Credit and Equities. Notably, the IP&S division has emerged as a pioneer in delivering tailored investment solutions to institutional investors and key stakeholders across the region, including intermediaries, single and multifamily offices and high net worth individuals. With a strong track record spanning 28 years, they have meticulously cultivated an ecosystem of proprietary relationships, a testament to the unwavering dedication. We recognize intrinsic value of this, having dedicated ourselves to similar endeavors in Brazil over the past 15 years. Furthermore, their asset management platform covering credit and public equities highly complements our product offering in reaching our arsenal with country-specific in Latin American regional strategies. Let me give you some color on what our combined platform will look like. Vinci will surpass $50 billion in assets under management maintaining a very long-term oriented profile with roughly 40% of the AUM carrying lockups of at least 5 years. On a revenue perspective, considering 2023 pro forma numbers we will exceed $150 million in fee-related revenues, with close to half coming from private market strategies. Combined fee related earnings would reach north of $55.5 million in 2023. The business combination will result in an aggregate FRE margin of 36%. We believe there is significant potential to leverage synergies from both revenue and productivity as we integrate the companies, which will boost even more the accretion to FRE per share. We will work with a global consulting firm to have assisted in this initial integration process, looking for best practice and efficiency across the platform. In addition, we expect this work to help us structure the business going forward in the best way possible to capture the strong growth opportunities the combination presents us. We'll keep the investors up to date as we unlock synergies and improve margins over time. Additionally, we envision significant potential from revenue synergies with this combination. For instance, by leveraging our newly combined entity, we'll have the opportunity to efficiently distribute our extensive private market content, both existing and forthcoming products, 12 Ps across Latin America ex Brazil. Additionally, we anticipate expanding the scope of deals within corporate advisory to encompass other countries. These are just a few examples of media opportunities that can be unlocked by tapping into pre-existing infrastructure that Compass has to offer. Furthermore, we believe there is a big opportunity to jointly develop new products such as private market LatAm-focused funds, which would serve as an expansion of products currently offered by Vinci, which have traditionally been single-country focused. This aligns perfectly with the growing demand from global LPs to reduce the number of GP relationships seeking comprehensive solutions for the region when allocating capital to Latin America. While Vinci has previously catered exclusively to Brazil, combining with Compass opens the door to address the broader LatAm markets. To wrap up on growth opportunities, there is one that holds the potential to significantly reshape our trajectory over time. Since our IPO, we have been acutely focused on generating inorganic growth opportunities for the platform. During that period, we worked on an extensive pipeline of deals covering several strategies. We are proud of the transactions that we have announced so far. First, our special situations business, SPS, is posting stellar results in currently preparing fundraising for new funds considerably larger than its predecessor. And now we are combining with an asset manager in Latin America and becoming pan-regional. With all the pieces in place, we see significant opportunities for Vinci to continue to grow its business. This positions us to explore numerous opportunities across Latin America that were previously not on the table. As Alessandro highlighted, we are generally excited about the region's prospects in the coming years. Our focus now shifts to fortifying our position as a regional leader and player of choice through additional regional acquisitions and partnerships. To close my remarks, I would like to go over the transaction details. The transaction was structured through an upfront consideration of approximately 11.8 million shares of Vinci Class A common stock and a cash consideration of $31.3 million. Compass Partners will share the same long-term plans already in place at Vinci to ensure talent retention. On top of that, Compass will be entitled to an earn-out of up to 7.5% additional stake in the combined entity to be paid until 2028, subject to the achievement of predetermined performance objectives. We also expect Compass to be an integral part of our governance with Manuel Balbontín, Compass Chairman, and Jaime De la Barra, Vice Chairman, both founders, joining our Board of Directors. Compass executive partners and senior management will continue to work alongside with us to deliver future growth opportunities to our now combined platforms. With this, we conclude our prepared remarks for today's call. Thank you again for taking the time to understand more about the transaction and for your continued support.

[Operator Instructions]. Our first question comes from William Barranjard with Itaú BBA.

Good morning, everyone. Thank you for the opportunity and for hosting this call. Firstly, I would like to congratulate you on this huge announcement. We look forward to seeing how the company will develop going forward. So my question here is related to potential synergies, so this size of the earnout seems to indicate that it could have significant impact on business profitability. So I would like if you could walk us through your scenarios. So what would be the base case and what could be considered as a blue sky scenario in terms of synergy gains, be it in terms of cross-selling opportunities, integration and other additional M&As. Any color here would be great.

Hello William, this is Bruno. I'm going to start and ask Alessandro to complement me if he has anything still to add. It's a big and very broad question. So on the earn-out, the earn-out is based on growth of the Compass platform, right? So we based the earn-out on a similar price to revenue multiple in the original transaction. So if you forecast -- I mean we have [ exploring ] the ceiling in terms of growth of the platform going forward. And if you forecast this growth and accounts the earn-outs, given that the price revenue was the same, the accretion of the earn-out is actually higher for the combined platform than on the original transaction. We are very excited and given this characteristic of the earn-out, we're fully aligned with Compass to achieve the earn-out. The idea -- the main driver of the earn-out is going to be revenue. We expect -- I mean, given the complementarity of the platform and the depth in commercial relationship that Compass has in Latin America, we expect to be able to develop and use the content that Vinci already has in-house to substantially capture the value of this distribution platform. And as I said, we're going to be fully aligned with them in achieving the earn-out. There are a very low-hanging fruit opportunity for us from the productivity side like both of us have offices in Sao Paulo, both of us have offices in New York, for instance, there's opportunity there in terms of the lease in combining our operations that certainly are going to add a few basis points in terms of accretion. But our expectation long term is going to be mainly driven by revenue, content creation, content distribution from our platform into Latin America, new product development. We believe there's really a lot of opportunity for us to capture as a combined platform on the content side. Finally, on the M&A, we believe Compass will add a significant opportunity for us on M&A. There is a big amount of opportunities in Latin America that are, I would say, tuck-in acquisitions or specialty acquisitions that will complement our ability to generate returns in some of these markets. In the past, as an independent firm focus in Brazil, it was very difficult for us to look into one of these acquisitions. And it makes sense for us. I mean if we looked at an acquisition in Chile or Colombia or Mexico of, let's say, specialty provider, specialty asset management firm that we have a few billion dollars of AUM in a specific vertical as -- in our configuration before, these were transactions that weren't very interesting, right? We would have a lot of oversight cost will be far away from us. We wouldn't be able to leverage these platforms to their maximum capability. But with Compass together with us, this changes a lot the playing field in that sense, right? So these medium, smaller acquisitions that complement the platform are going to make much more sense now. We are going to be able to integrate them much better, generate growth for them much better and obviously have the opportunity to have our partners at Compass to helping us understand how these transactions could complement our local content providers, right, the local content and asset management that we would have -- Alessandro has anything to add?

Thank you, William, and that was a very comprehensive question. And I think Bruno answered perfectly. I would like just to reinforce some points that are very relevant. So we are seeing the potential for big synergies, especially on the revenue side and also on the efficiencies and productivity because there is different depth of each of these strategies and asset classes and distribution channels for each country or each of the companies. So we already identified, and we will take some time as we spoke before with a global consultant firm to really schedule and really organize the priorities where we will gain this revenues and productivity efficiencies over time. But we are very, very confident there is -- with this massive $50 billion of AUM in this region, there is a lot of things to be done. So we are very, very optimistic about that. Of course, there is some cost efficiencies, but not will be the main driver of value over time. And just to reinforce on the M&A side, as Bruno said before, we were looking just for a specific one strategy firms that could complement our already established strategies like real estate, private equity, private credit and et cetera. Just in Brazil now, it makes sense to expand this universe to the whole Latin America that before for Vinci alone didn't make sense due to the cost of oversight of buying a specific asset management in one country. Now it makes sense like it made sense before just in Brazil.

The next question is from Ricardo Buchpiguel with BTG Pactual.

I have two questions on my side. First, can you go in more details where the culture of Vinci and Compass intersect and where do you see more of a diversion. Also touching points like difference in terms of compensation structure, governance controls and the overall mindset of the management business? And for my second question, I wanted to get a better idea on what would be the main low-hanging fruit in terms of cross-selling opportunities, like offering which products, which type of client and where do you see -- or this client base is demanding something that, for instance, Compass could quickly offer. So touching this point would also be very helpful.

Okay, Ricardo. I'm going to ask Alessandro and Jaime to cover the culture compensation point. I think we have some interesting tidbits to share there. And I'll cover the second question.

So I will start with the -- thank you, Ricardo. I will start with the cultural intersect and alignment -- and I'll leave to Jaime to go more on the compensation side. We have been talking with Compass partners for almost 2 years now. So this in a way helped us to really understand the culture and the alignment that we had. Both companies were founded by partners that are executive there in a day to day of the company. They built the company based on ethics reputation overtime that was clearly very important to cater to the clients that are institutional and high net worth. Also, the confidence that they depositing us, especially because alternative generally are very long term products so with this in mind both companies separately over the last few years, built this reputation and competency to really deliver not just very strong performance but also rely on the confidence of the clients. At the same time, we have been places where we have been able to attract a very strong talent for each of the countries that we have established. We'd like to say here at Vinci that our business, the asset management business, especially in alternatives, is a combination of 3 factors: capital, talent and ideas. And both companies over the last 2 years, we understood that we are quite very aligned in that direction. So this was a very easy conversation, a very transparent one to reach an agreement like we are announcing today. So we are very, very constant that this cultural alignment and this intersection of culture over time, even though we were born in different parts of Latin America, we will create a very relevant and integrated platform for the regional. And in terms of governance, I would say that we were working already at the same type of structure with the Board and COOs and professionals that work with their own day-to-day responsibilities. Now of course, you will need to address the integration of the whole firm that why, again, we will have the help of our global consultant just to organize this process. But we do not foresee any difficulties because we have been talking for a long time, and we see that it's very easy to understand of course, respecting the regulatory, the idiosyncratic reality of each of the parts of our combined company in each of the countries that we are established, but we do not foresee any big challenge going forward to integrate that, even though that will be an important work going forward. With that, I will leave Jaime to talk about a bit about compensation.

Thank you, Alessandro. Just very briefly in terms of the cultural alignment. I mean, as I said before, it's I mean, during the last 2 years, we were able to get to know each other. And at the end, with both partnerships. We both realize that we have a very flat structure and open door policy and we have always believed within Compass that basically our main competitive advantages our people, I mean, our human capital. And that, I think we're super, super aligned in terms of the values that we share. And then in terms of compensation at the end, I mean, the compensation is pretty much in terms of the structural very similar to what Vinci has -- it's mainly aligned with the performance metrics, with growth at the end of the company. So that's pretty much it, I would say.

Okay. Ricardo, going back to the low-hanging fruit. I think the easiest part for us is to capitalize on the products that we have already in the market, right? So in the last a couple of years, as we have been discussing the potential partnership with them. We have gone through some of the strategies at Vinci. So the VCP strategy, our distressed SPS special situation strategy. So these are things that we believe, given the level of returns that will have demands in other markets in Latin America outside of Brazil. So the clear first opportunity is just to plug in whatever we have in fund raising at this point that this is -- in terms of returns that we feel might have demand from other countries in Latin America. And over time, I think a lot of the discussions that we had so far was to focus on developing both local to local content in private markets. So using our track record to develop new products in a few of these markets. And some of them, we have identified and Compass really have made it very clear to us that there's substantial demand on a local-to-local basis and this would be driven mainly by local capital. So Mexico, Chile are 2 of the markets that we believe private market local demand could have a significant impact to us. And then finally, thinking on a global basis, as Alessandro mentioned in his prepared remarks, I think moving our solution to also encompass a regional solution to give LPs an opportunity to allocate in the region, not only in the specific markets. I think this is something that would probably add substantial capacity to us and attractiveness to solve problems to some of these LPs that want to have allocations to LatAm private markets. So those are the opportunities that we see.

Next question from [indiscernible] with JPMorgan.

Congratulations on the news. 2 questions on our side. The first one, IP&S from Compass. If you guys can provide a little bit more color, we saw the $33 billion AUM. But just trying to understand in terms of either type of LP that is requesting this type of mandate is more pension funds or not? Is it more Chile or not? If it's more credit allocation or it's more broad. Just if you can give a little bit more color on what type of mandates Compass is operating IP&S. And in the end, it's just to have a more clarity view on whether this IP&S solution is similar, not to Vinci to what we see in Vinci. And the second one is related to dividends, especially in the context of the earn-out. How should we think about the dividend policy in these 4, 5 years of the earn-out because, of course, this is going to affect the market value of Vinci.

Okay,[indiscernible], I'm going to start tackling here the second point and a little bit of the first, and then I'm going to refer the rest to Jaime. So dividends are not going to be -- we don't anticipate that dividends is going to be impacted. Obviously, we are -- they are at a very cash-rich position. So we're going to use some of that cash to close the transaction. And on the earn-out, the number of shares are only going to be affected once the earn-out is earned, right? So there is no impact on dividends until the earn-out is achieved. So -- and at that point to have an increase number of shares, so we don't anticipate any impact on the earn-out -- on the dividends, sorry, at this point. In regards to IP&S, it's -- so we are a part of our business, international part of our business is not dissimilar to what Compass has, but it's very small on a relative basis. So we also have the discretionary allocation to international GPs. We also have nondiscretionary allocation to international GPs but the volumes that we have on these 2 products are not very big at this point in time. And it's an area that we have been always very bullish. I think scenario that we feel can have a substantial amount of growth in Brazil, right. So it's something that we have been invested overtime. We have looked at inorganic opportunities to enhance our offering in the international IP&S part. And now with Compass in the group, we have substantially enhanced our ability to provide solutions in regards to international GPs. So one of the parts that I did mention in the prior question is also distributing the solutions from Compass regarding international GPs to our Brazilian LP base, right? So this is an area that we feel can have very good traction in the short term. So allowing people to invest in private equity globally, private credit globally, real estate globally, equities globally and all of the umbrella in terms of the GP selection that Compass have done overtime that has been superb job that they have done and obviously this shows in the numbers that they have been able to post over time in terms of growth in AUM, LP relationships, the quality of the offering that they have on the solutions side. So this is something that -- for us, it's very attractive as a short-term driver of business, but also thinking about the long term of the business, it allows us to be in this position that we kind of [ baptise ] has been like the gateway. So everything that has to do with private markets, either investing globally or locally or regionally it's going to have to go through us, and we're going to be able to look at all of this interest and then see how to provide the best service to our clients regarding these solutions. So with that, I'm going to defer to Jaime to go into a little bit more detail on Compass, IP&S.

Yes. Thank you, Bruno. Well, our IP&S is mainly composed on global advisory services, which is basically providing access to best-in-class global managers to Latin American. You were asking about in terms of types of clients. I mean it's mainly institutional investors. That's how we started at the beginning, but now it's basically institutional investors, family offices and intermediaries throughout the region, okay? So and it's both -- it's on global alternatives and more traditional liquid funds, which were definitely one of the leaders in terms of market share in the countries where we operate, okay? And on global alternatives, some of our clients invest directly in those global funds and some through our feeders. We have more than 40 feeders in different jurisdictions that we have there. So that's mainly the IP&S business, okay?

If I may, just a follow-up on Chile. Do you have a sense of how much Chile represents on this AUM or client base? Just trying to think if AFPs in Chile are a relevant part of this mandate or...

We are. Yes. They are a relevant part, and that's how we started. We started in Chile with the pension funds there and then we started with the same businesses in Peru, Colombia and Mexico, also with the pension funds also being a component there, but we over the years, we've been able to diversify among other institutional investors like insurance companies, mainly some intermediaries as well and family offices.

Super clear. Congratulations on the M&A again.

Next question from Kaio Prato with UBS.

Congrats on the transaction. I have 2 questions on my side, please. The first one in terms of the deal, we saw the numbers on FRE for both companies here. And I think it's clear on the FRE accretion for the deal. But just would like to understand how you're thinking about the DE and a net income basis, if this is also accretive or not, what changed here? And the second one is related to the partnership with Ares that you announced during our Investor Day, I would say, recently. So how would work, I would say, these 3 companies together, how different would be the partnership with Ares and also now with Compass. So if you can give you some more qualitative, I would say, idea here would be great.

So on an FRE basis, as you said, I mean, the math is kind of today, if you look just at the numbers for last year, the math is that kind of the high single digits from a per share basis accretion. If you add this that I mentioned before, there's very low-hanging fruit opportunities we should be able to push this to double digits without factoring any cross-selling, new product development or any other productivity enhancement opportunities, just really the more basic things. From the accretion standpoint, we expect it to be accretive in the low single digits in the early part of the transaction. And then as we develop the cross-selling and new products, distribution, et cetera, we should be seen that accretion or eventually other productivity opportunities, we should see that accretion expanding and accelerating over time. In regards to Ares, so the way that we have developed the partnership with Ares, we have a few initiatives with them, right? So we are looking at things to do together on the investment side. So we are sourcing transactions in Latin America and trying to figure out if there are pockets of opportunities where we can co-invest. This is an area that I feel in 2024, very likely, there's going to be something that we're going to do together. So either something in the existing portfolio companies or new transactions or new investment opportunities. This is an area that had conversations have evolved in and have started to bear some fruit. We have exchange notes in regards to best practice. Regarding the development of Vinci as a platform, so how -- I mean, how to grow and how to leverage our business and which areas we feel globally are -- growing more in types of solutions. So just to give an idea, Marcelo Mifano, the Head of our Special Situations unit spent -- a couple of weeks ago, he spent a full week in the United States talking to the GSO and Pathfinder teams at -- sorry, [ Ares Vallis ] and Pathfinder teams at Ares. And they discussed strategy. They discussed opportunities to invest. And I mean, what were the transactions and interesting market opportunities that we're seeing in other markets. So this is an area that we also have been talking a lot, right? We have been discussing with them also M&A and other opportunities of that sense. And finally, distribution. On distribution, there is not a predetermined agreement. So Ares has their own solutions regarding distributions. So they have their solutions in Latin America. They have their solutions in Brazil. And we are talking with them regarding our products in their distribution capabilities globally, right? So we have been talking with them about how they could help us with specific LPs in regards to VCP or in regards to in a future moment SPS IV which is, as I said, is a strategy that has very good correlation with what they have in their portfolio today between [ Ares Vallis ] and Pathfinder probably in the middle of the two. So this is the way that we have been working together with them. I think, I mean, obviously, it will expand. So before we had Brazil as a point of contact for all of these opportunities, now that we will expand into other markets in Latin America. And I think Alessandro also has some comments to make here at this point.

Yes. Just to add quickly another point is that on the best practices, we identified that one of the main avenues to grow is on the local to local dimension would be on private credit that obviously Ares is a very important player. So we are very thrilled with the opportunity regarding private credit in countries like not just Brazil, of course, that's in the early days, but Mexico, Colombia and Chile. So we believe that will be an avenue of growth that's very important. And of course, best practice from Ares could help.

The next question is from [indiscernible] Kepos Capital.

Congratulations and thanks for taking the call. I wanted to ask on how you plan to work on branding on the different markets. If you're going to keep the Compass brand in Latin America and Vinci for Brazil or combine them and similar, but for the management structure of the companies, if you plan to keep them separate or combine them and what is approximately the time line. And if one more is allowed, if you could comment a little bit on Compass balance sheet even that Vinci has a very strong balance sheet and for part of the transaction is exchanging a part of one for a part of the other. So yes.

Thank you for the question. I'm going to ask Alessandro to take the first two and I'm going to take the third one.

Thank you, Bruno. In terms of branding the idea initially it would be to keep the brands because they are strong in their respective markets. So we'll keep, of course, Compass on the main countries that they are leaders. And of course, in Brazil, we keep Vinci. Going forward, we see if there is any better combination going forward internationally, but the idea would be to keep the brand like I said. So Compass in the countries, they are leaders and Vinci in Brazil. In terms of the -- going forward, the structure our idea about hiring this global consultant that we organized the process for us is that we believe that the synergies will be unlocked, especially on revenues and efficiency by integrating the structure. So our view is that we integrate, of course, respecting regulatory, country issues, the framework of the overall company, but with the fullest integration as possible to really cross-sell not just products but take advantage of the distribution channel that we have now and also the knowledge and the track record of each of the verticals that we have. So I'll leave Bruno to talk a bit about balance sheet of Compass.

Yes, yes. So Compass does not have a substantial balance sheet at this point. They are debt free and there's just a small amount of GP commitment, but it's not relevant. It's a very small amount. So the company has very good characteristics from a business standpoint. It is asset light, very small balance sheet, very high recurring fee structure, high FRE dependency on numbers. So most of the distributable earnings come from FRE, highly recurring FRE. So it's a great business, and it's going to substantially add to our -- as we have been saying, substantially add to our capacity as a combined entity going forward.

If one more is permitted. You have a lot of experience in private products in Brazil, but not so much in Latin America, and I understand Compass is more on the public products globally or in Latin America. How do you plan to gain the experience or trust for developing private products in Latin America, outside Brazil, given that there are cultural differences in the regions or subregions.

Yes. So I think here, we have a few options, right? So one of the options is to leverage on our track record in Brazil, right? So we have a very extensive track record in Brazil. We have been asked over time by our LPs if some of our strategies could be expanded to other Latin American countries. So we believe there is some translation of that track record from Brazil given the specialty and the very high returns that we have been able to obtain over time into Latin America in a gradual way, let's say. So we could open up regional strategies with a small percentage amounts in other countries to be over vintages, grow those amounts over time. This is an option, do it organically, let's say. The other option is to add track record locally. So as we were saying before, one of the things that didn't make sense for us as a platform before the combination with Compass was to acquire track record locally in private markets because this would be tough for us to scale and to integrate. I think now this is an opportunity for us. So if we feel that in any of these asset classes, there is a very big opportunity either locally, local to local basis given now the distribution that we have or to roll up to a regional strategy in a way that we believe organically we wouldn't be able to let's say, take advantage of the entire opportunity. We would look for inorganic ways to enhance our track record and been able to tackle those opportunities quicker and at a bigger scale in the short term. So I think those are the 2 options. We feel very stronger that both avenues represent a huge opportunity to us. If you look at our competitors that have pan regional funds. Their funds are 3, 4, 5x larger than ours. So we believe that going to a pan-regional design will allow us to upsize the strategy that we have potentially very materially. But we are comfortable that either organically or inorganically, we're going to be able to fill the gap that we need from a track record standpoint to achieve that goal of obtaining scale in private markets in other regions of Latin America.

The Q&A session is over. I would like to turn the floor back to Mr. Alessandro Horta for the closing remarks. Please, Mr. Horta you can proceed.

Thank you very much for your continued support, and this is a very, very, very important day for us at Vinci and also, I can say for Compass. And we are really thrilled with what lies ahead for us. So we are very optimistic with the future and we hope that we will be back with very good news very soon. Thank you very much.

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