Good afternoon, and welcome to the Vinci Partners First Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions]. 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 afternoon, everyone. Joining today are Alessandro Horta, Chief Executive Officer; Bruno Zaremba, Private Equity Chairman and Head of Investor Relations; and Sanju Pass, Chief Financial Officer. .
Earlier today, we issued a press release, slide presentation in our financial statements for the quarter, which are available on our website at ir.vincipartners.com. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and outside of the firm's control. may differ from actual results materially.
We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our 20-F. We will also refer to certain non-GAAP measures and final reconciliations in the release.
Also note that nothing on this call constitutes an not resell or solicitation of an offer to purchase an interest in any Vinci Partners fund. With that, I'll turn the call over to Alessandro..
we have once again proven ourselves resilient in a difficult scenario for capital markets locally and internationally. At the same time, we believe we are in the beginning of a cycle of decline in interest rates in Brazil that should power attractive growth for the company throughout all initiatives we described today.
The growth we were able to achieve in private markets since our IPO, against historical interest rates tightening cycle at course the potential to increase penetration of alternative investment assets in Brazil, current allocations.
Are we still in the low single digits percentage of total industry AUM, and we expect this number to continue to grow over time. We are here to share with shareholders and investors what we have learned resilience in tougher environment paves the way to expansion in favorable ones.
With that said, we are digging deeper into our platform from both cost and product offer standpoint. -- to be ready to excel expectations in this future is in cycle. With that, I'll turn it over to Bruno to go over our financial results..
Thank you, Alessandro, and good afternoon, everyone. Starting on Slide 10, we will cover AUM trends for the first quarter. Vinci ended the quarter with BRL 62.2 billion in AUM, up 10% year-over-year boosted by growth in our private market strategies and the acquisition of ISPS. Our long-term AUM accounted for BRL 31.3 billion in the quarter.
increasing 19% year-over-year and it currently represents roughly 50% of Vinci's total AUM. This is a direct result of our efforts into private market strategies as they carry AUM with longer lockups.
The highlights to this quarter's fundraising was the first close held by Vinci Climate Change or we're seeing great traction with international fees for this product with several relevant soft circle commitments and we will come back with additional closing for this fund still this year.
We are confirming our prior view that there is still significant dry powder available globally for climate transition strategies, which bodes well for the VICC's fundraising cycle. This quarter, we also had some new capital subscriptions in VCP IV.
However, we are expecting heavier contributions from this product in the second half of the year as we have been experiencing a congested market worldwide for fundraising private equity. with several struggling with allocations due to the number of funds coming back to market and a temporary overallocation to the asset class.
Although posting another quarter with positive growth trends in AUM on a year-over-year basis, we suffered this quarter with volatile markets that have negatively impacted real estate and liquid strategies.
In fact, if you look at the AUM roll forward available in the material, most of the AUM fluctuation in the quarter can be traced to the mark-to-market in these 2 asset classes. The liked REIT industry, in particular, was heavily impacted by mark-to-market effects during the first quarter, but have come back significantly so far in the second quarter.
We have GP commitments in some of these listed products and their mark-to-market will fluctuate as unrealized income in our quarterly earnings. This was the main reason for our lower net income in the first quarter.
we should see a positive rebound for unrealized GP commitment in our income statement in the second quarter if the REIT market recovery that we're seeing in the months of April and May continues until the end of the quarter. We expect the Centro Bank to start cutting interest rates still in 2023.
This will be an important driver for listed REITs as the funds tend to be more appealing to investors in a lower rate environment.
Currently, funds are trading at prices below NAV, which limits their ability to do primary issuances in the market with an easing cycle in rates we should see a pickup in the REITs market that should put us in a better position to come back with fundraising for these products.
The past few quarters have been very challenging period for our liquid strategies. We have seen very strong outflows in the industry, and mark-to-market has also been unfavorable. Despite this reality, we have been resilient in our liquids vertical.
We believe our liquid AUM should also benefit from an easing interest rate cycle, both from a reversal to positive net inflows, but also from favorable mark-to-market in our existing funds. Relative valuation differential support a constructive long-term view for listed equities in the country.
Today, for instance, the public markets in Brazil are trading at the lowest relative valuation against developed markets we have seen in the past couple of decades. This comparison was made using next 12-month forward earnings. Moving on to Slide 12. We go over accrued performance fees in our private market funds.
Gross accrued performance fee receivables accounted for BRL 155.2 million in the first quarter.
The VCP strategy currently accounts for roughly 90% of accrued performance fees representing an appealing upside for future performance fees, with capital returns happening from SPS and VIR, we expect the source of potential future performance fees from our private market verticals to be diversified in coming quarters.
At the end of the quarter, Vinci had BRL 12 billion in performance as AUM coming from private market funds still in investment period that can further contribute to our accrued performance fees as this fund entered their divestment periods. Turning to Slide 13, we will cover our fee-related revenues.
Revenues from management and advisory fees totaled BRL 100.3 million in the quarter, up 10% year-over-year. Management fees accounted for BRL 95.9 million in the quarter, up 10% year-over-year.
we should see a continued positive trend coming in the next few quarters with new capital raises in our closed-end products in private markets, combined with the increase in our average fee rates as we deploy capital in SPS III and Vinci Credit infra.
Both have significant dry powder to allocate and charge fees over invested capital in the case of Infra and benefit from a step-up in fees in the case SPS.
Another important contribution will be retroactive fees in VCP IV and VICC as these funds are currently raising capital and additional commitments will retract fees to the date of the fund's first closing. In Slide 14, we present our operating expenses for the quarter and last 12 months.
Total expenses accounted for BRL 52 million in the quarter, up 8% year-over-year. This quarter, we had an on-off expense effect related to our efforts into cost efficiency. As we anticipated last quarter, we are hugely focused on cost consciousness this year, looking actively for efficiency across our platform.
This resulted in an internal personnel restructure during the first quarter will ultimately result in savings into 2023. We will continue to look for efficiency across our business lines, focusing on accelerating the operating leverage of our platform to deliver healthy margins every quarter.
We believe that this approach, alongside our fundraising cycle in private markets should result in long-term margin expansion. Moving on to Slide 15. We go over our fee-related earnings for the quarter. FRE totaled BRL 49.1 million or $0.90 per share in the quarter, up 14% year-over-year on a per share basis.
The platform is starting to reap the benefits from the fundraising cycle and private market strategies, and we should see greater contribution towards the end of the year. Another driver for FRE growth year-over-year was the acquisition of Vinci SPS.
Over the last 12 months, FRE is down 9% when we compare the same last 12 months period in first quarter of '22, given the outstanding performance from our advisory segment throughout 2021, which did not occur in 2022 given market conditions.
Considering only our core asset management business, FRE was BRL 194 million over the last 12 months or BRL 3.51 per share representing a 4% increase year-over-year on a per share basis. Shifting to Slide 17, we'll go over our realized GP investment in financial income.
Vice had BRL 26 million in realized GP and financial income this quarter, roughly in line with the same period of last year. Over the last 12 months, realized GP and financial income totaled BRL 106.1 million, representing an increase of 64% compared to the same period last year. Turning to Slide 18. We go through our adjusted distributable earnings.
Adjusted distributable earnings totaled BRL 60 million or BRL 1.10, up 6% year-over-year on a per share basis, backed by fundraising across private markets and the acquisition of Vinci SPS. Adjusted DE totaled BRL 250.1 million or EUR 4.53 in the last 12 months up 3% on a per share basis when compared to the same period of last year.
Moving on, I would like to spend a few moments covering our GP commitments in Slide 20. As of the first quarter, Vice had committed BRL 1.1 billion proprietary closed end funds. These commitments work as steel investments in our funds to leverage fundraising with LPs and drive future growth in private market for results backed by long-term capital.
When the IPO-ed in January of 2021, we expect to use most of the cash proceeds from our primary as seeds to develop new private market products and launches of new vintages in existing strategies.
As Alessandro mentioned, our ability to leverage our capital to launch products was one of the main drivers of the strong private market growth we realized since our IPO.
However, Don't lose sight of the fact that these commitments are assets in our balance sheet and are relevant drivers of long-term value creation, not only through FRE growth, but also from expected returns to our commitments as relevant LPs in our strategies.
Taking into account the expected historic returns of each of our strategies, the current BRL 1.1 billion commitment translates into a weighted average net IRR of close to 20%, which in turns equate to an expected 2.3x net for this capital over a 5-year span.
Net of fees and taxes, this represents a potential of approximately BRL 1.2 billion in profits to be realized from this commitment is currently on the balance sheet. Therefore, we are talking about an additional BRL 4.40 per share of value being created by our current balance sheet over the next 5 years.
Over the short term, our proprietary positions in listed REITs are paying us predictable monthly dividend distributions that have provided an interesting contribution to R&D numbers. At the same time, these commitments have allowed us to issue more share in the REITs, which benefits FRE. Our priority continues to be adding long-term shareholder value.
We believe we have several levers to achieve strong value creation over time through AUM and management fee revenue growth Increased performance revenues contribution expected GP commitment returns and inorganic expansion through acquisitions to name a few. All of these individually represent meaningful value to be created.
We continue to be very focused on delivering on these initiatives as we move forward. And with that, I will turn it over to Sergio to go through our segments..
Thank you, Bruno. Turning to our segment highlights. As you can see in Slide 22, our platform remains widely diversified, which we believe should be the main contributor to the resilience of our business.
Regarding the investments made in the VRS segment, 57% of our FRE over the last 12 months came from our private market strategies, followed by IP&S with 20% liquid strategies with 18% and financial advisory contributing with 4%. The same level of diversification is reflected in our segment distributable earnings. Moving on to each of the segments.
We start with our private market strategy on Slide 23. FRE totaled BRL 31.6 million in the quarter, up 27% year-over-year driven by the strong fundraising cycle experienced over the last 12 months and the incorporation of Vinci SPS. The biggest achievement across private markets this quarter was the first closing of Finch climate change or VICC.
The first close was backed by BNDES and international LPs, and we expect to announce new subscriptions over the next few quarters as we are seeing great traction for this product with the international base. Please note that the closing was held in the end of the quarter. Therefore, we will start to earn management fees in this second quarter.
Bear in mind that the VICC has a retroactive fees clause. Thus, following commitments will retroactive fees to the start of the fund. Segment distributable earnings were BRL 37.5 million in the quarter, an increase of 39% year-over-year, boosted by FRE growth. TAUM was BRL 28.2 billion for the end of the quarter, up 34% year-over-year.
Adding to the previously mentioned contribution from BNDES, we also had contributions throughout the year in our fourth vintage for our flagship private equity strategy, VCP IV. As anticipated by Bruno, we should expect more impactful meets for [indiscernible] towards the second half of the year. Moving on to Slide 24.
We go over results for liquid strategies. Fee-related earnings in the quarter of BRL 8.4 million, down 19% year-over-year as our management fee revenues were impacted by AUM depreciation. -- as fees are charged over funds NAVs.
Total AUM was BRL 9.8 billion at the end of the quarter with AUM being resilient for outflows compared to the Brazilian industry for liquid strategies. As an example, according to the public data from Ambien, the public equities industry in Brazil had close to BRL 19 billion in the redemption this quarter or 4% of the total AL.
Meanwhile, Vinci's Public Equity segment posted BRL 18 million in inflows over the first quarter. We are reaping the benefits from [indiscernible] our biter relationship with our clients.
As previously mentioned by Alessandro, Bruno, we improved outlook for an easing cycle in local interest rates aligned with a more market-friendly fiscal framework we could see a pickup in liquidity there from both inflows and appreciation standpoint. That should happen towards the end of the year and throughout 2024.
Meanwhile, we have positioned ourselves to take advantage of this new market cycle. Moving on to our P&S business on Slide 25. FRE totaled BRL 9 million in the quarter, down on year-over-year basis.
Over the last 12 months, FRE totaled BRL 41.1 million, up 3% compared to the same period last year [indiscernible] segment the year totaled BRL million in the quarter, up 1% year-over-year. Total AUM as of the end of the quarter was BRL 24.2 billion, up year-over-year.
Over the last 12 months, we encountered a high level of both real and nominal interest rates in Brazil. This contributed to a lower growth pace for our IP&S business with the expectations of lowering rates in the second half of 2022.
We shall see a pickup on AUM numbers or IPS as institutional investors have stronger incentives to seek assistance to be able to outperform their actuary goals. Turning to Slide 26. We cover our results for financial advisory. FRE for financial advisory was BRL 1.5 million in the quarter.
For the last 12 months, FRE totaled BRL 9 million representing a decrease of 67% compared to the last year as we experienced a stronger year for our advisory business in 2021, although uncertainty to predict we should expect an improvement for next quarter onwards as we are experiencing a pickup in deal activity.
Finally, moving on to Slide 27, we go over results for the Retirement Services segment. Fee-related earnings for the quarter was negative BRL 1.5 million. And over the last 12 months represented a negative BRL 6.1 million. As Alain mentioned earlier, launched the VRS product in the later part of the first quarter.
Therefore, we should start to see modest revenue contributions at the same point in the second quarter. As we have been stating, this number should become more relevant to the business next year. We are very optimistic and excited with the prospect for VRS and we'll keep updating our investors as the business develops throughout the year.
That's it for today's presentation. Once again, we would like to thank you for joining our call..
[Operator Instructions]. Our first question comes from Daer Labarta from Goldman Sachs..
A couple of questions, I guess. Just on the outlook for fundraising, I know you're halfway through on the private market strategies. But I know the sand that you mentioned you're going into an easing cycle.
However -- I mean this easing cycle likely may not be as strong as the last one, right, rate maybe in the year 12, I'm not sure how that will end up next year.
How much of a reduction in rates do you think would really be needed to really see a lot more interest or for the liquor strategies, I guess, in particular, to do much stronger and for that to improve? I mean, do you need to get to single digits? Just to put it a little bit into context, given where we are in Brazil today? And then -- and also on the IT&S strategy, it was a big grower last year.
had some outflows this quarter. Just to understand a little bit what happened this quarter with the outflows and how that strategy in particular should continue to evolve..
This is Alessandro. Thank you very much for the questions. First, starting with the fundraising for private markets and I would say the relation with the rates, that's my opinion, of course, is not a mathematical relationship.
But I would say that we would see more like, I would say, more stronger flow not just for private markets, but I would say for all the other asset classes that we have, when we see not just starting the cycle and as you said, that probably will happen maybe not so strongly and fast as other cycles.
But with some kind of targets in the high single digits. To the point that we expect that we can see these rates coming down to high single digits. I believe that we start a very important movement of capital. Having said that, we believe that we are already starting some dislocation, okay, on that direction.
But we believe in the second half of the year, when we start seeing the rates going down nominally even if not strongly, we will start to see some movement to our asset classes, especially private markets. We will see, for instance, the REIT market on real estate recovering, we'll see more money going towards infrastructure, too.
So I expect this to happen -- start happening in the second half of the year. But to see a more strong movement we need to see in our horizon, something on the high single digits as a target. And as for the second question regarding IP&S, I'll take this question, too.
What we saw in the last quarter was more like redemptions coming from to, especially related with more like products that were distributed through some retail channels. But this is really not very relevant, and we are seeing already this is stabilizing.
We expect the largest flow for IP&S will come together with the starting of the easing cycle when the pension funds, institutional clients as a whole, we started reallocating out from just fixed income, pure fixed income to rebalance the portfolio. So recently, we saw more redemption related with funds that we have distribution through retail.
But going forward, we expect the biggest flow to start with institutional clients coming back to more structured portfolios..
Okay. Great. Alessandro. That's helpful. Maybe just one follow-up.
Just on -- any color on the VRS segment and when that can become to -- start to be a contributor here?.
Okay. That's a good question. As we mentioned in the call, we just started VRS, it's live -- from the end of the quarter, okay, so it's really recent. We are starting the activity of fundraising with our high net worth clients today.
So we start seeing this AUM coming in, but still we are in a very, very, I would say, careful approach in terms of clients that we are reaching now. We will evolve that to other pools of capital to the end of the year. but we expect really that to be relevant in our numbers just next year when we start going for other pools of capital.
As I said, like corporate plans like more like distribution channels, et cetera, et cetera. that till the end of the year, we will start seeing the numbers picking up very slowly because it's our intention to really have a soft opening this strategy because everything is really new and just became live recently.
And there is a lot of technology that we invested in, that's really we believe that will be transformational for the industry. And this technology, of course, we are evolving that and testing that with clients that are more like wholesale near us, and then we evolved to a more broad group of clients..
[Operator Instructions]. This does concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Alessandro Horta for any closing remarks. Please, Mr. Alessandro, you may proceed..
Thank you. I'd like to thank you all for attending our call today and for your continued support. As we said during the call, we are very proud of what we have been doing in the last few quarters, especially on the fundraising of private markets.
And we believe that since we are more towards near the easing cycle, we believe that very soon, we'll have another important growth path to the firm in the -- until the end of the year. So thank you very much, and hope to see you soon next quarter. ..
Vinci Partners conference call has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a wonderful day. Thank you..