We did several follow-ons for 2 of our portfolio companies in 23, one from Infrastructure Fund III, actually, Etherios, Waterway is a company, and we also did a follow-on for our health care company, the Smartfit in ’23. So we will continue doing that in ’24, and we see an interesting market for additional follow-ons — so I hope I answered your question, infrastructure fee already there. Infrastructure far from there and product IFund V, depending on the mosaic of divestments here, we can reach that performance fee mode this year or next year, most probably next year, but we don’t actually depend much for the performance fee realization target that we have for this year on private esome time.
Marco D’Ippolito: This is Marco. Can I compliment something, Ricardo, it may be helpful for your question the way you’re building up the model. We have about $540 million of net unrealized performance fee. And out of this amount, $234 million from private equity Fund V, $169 million for private equity Fund IV and 110 from infrastructure fund III. If you tie this number to the previous information that Alex gave of $66 million that have been already returned and contrast that with the 3-year target of $180. So if you do — if you take from this $180 million, the $66, the $110 million that is visible on infrastructure III alone would be enough for us to meet the target for the 3 years. So as much as, of course, we’re paying a lot of attention to private equity V and private equity VI and all the considerations that Alex posed, which we still have to return the money before we get into the catch-up, Infrastructure III alone, which is already in a catch-up phase will be sufficient to satisfy the 3-year target that we set on our tax day in 2022.
Operator: Our next question comes from the line of Tito Labarta with Goldman Sachs.
Tito Labarta: A question on the management fee evolution in the quarter. Just you had very strong growth in the fee earning AUM, although the management fees did not grow as fast. Just to understand if there was anything in particular why they didn’t grow as fast as the fee-earning AUM in the quarter and also incentive fees were also a little bit lower. So it kind of led you to being slightly below your FRE guidance for the year, just to think going forward, if any downside risks on the guidance that you’ve given for the $170 million for next year, $200 million in FRE for 2025.
Alex Saigh: There are sometimes some quarter-to-quarter movements on expenses, and I also can turn to one, our CFO, to explain better. So sometimes, I think it’s better to see the whole year. As we know, we did some acquisitions. We had some synergies in place. Sometimes we do run the synergies in — and they appear in our numbers in one quarter versus the other. So because in 1 quarter, we had extra costs because we were running 2 teams, and then we don’t have to have 2 teams. We synergize to one team, and that shows in the other quarter. So it might have quarter-to-quarter kind of variances, but I’m very confident on the level of expenses that we are running today looking forward, which is the second point of your question, that we will be able to deliver the $170 million of FRE and over 200 million for 2024 and over $200 million of FRE for 2025.
In addition to the expense streams that you actually saw for 2023, there are additional synergies coming into 2024, even more so when we hopefully have the 2 pending M&As, again, we — to give you an idea, in some cases, we think that we can run the businesses with a lot higher FRE. We mentioned a couple of our earnings calls ago that our real estate investment trust business through VBI or through Credit Suisse, they were running at 30%, 40% FRE margins we can definitely push that up to our kind of margins. The same for our averaging carve-out global private market solutions business, a 30% margin business, I think we can push that up as well. That will come over time. It doesn’t happen again from one day to the next. That’s why during ’24, we call this more of a transition year because we don’t know when these big deals are going to close.
Again, they were already signed. And so a quarter over the next things might move a little bit. But we walk in to 25 with very strong numbers, as I tried to show during this earnings call with the inflows, organic in terms of this year that are projected to be $5 billion. We get into $25 million with $38 billion of fee earning AUM, you do the math buildout average management fee you see what kind of revenues you go into in ’25. And depending on the margin that you apply there, you can see that over the $200 million is possible, the chances of us setting that number increased with every cap. So I think we’re in a good place as of today. Of course, we have to continue to work very hard and deliver. But I think we’re in a good place. I think the chances of us hitting the numbers went up over the last quarters.
Ana, do you want to complement on anything about the expenses?
Ana Russo: I think as I mentioned during the first part, I think it’s a good a base for us to consider for — at least for the first quarter of the year is our average that we have done in the beginning of 2023 since the fourth quarter had some catch-up of one-timer. So we talk about our personnel expense being around $15 million and always expenses are — we are preparing and doing synergies. And I think the run rate that we have for between Q3 and Q4 are updating for when we look into 2024. There is a consolidation in integration in next year that we expect to continue in this path.
Josh Wood: Yes. And Tito, this is Josh. Just one other quick point on your point around fee earning AUM growing a little bit faster than management fees. There’s a timing impact to that in some cases. And just to give an example to take Alex’s point just a bit further is that the partnership that we closed with Bancolombia near the end of the quarter, you had a new real estate vehicle come in, bringing about $1.3 billion of fee-earning AUM, but we did not get a full quarter’s worth of revenue impact for that. You’ll see that as we go into 2024. So some of that is a timing impact just based on how the fee earning AUM flows in, which is obviously in full versus the revenue not being fully loaded until the next quarter.
Tito Labarta: And just on the incentive fees, they were also lower than they were last year. Any color you can provide on that?
Alex Saigh: Well, there, I think it has to do with some of the benchmarks and of course, our funds performed very well. As I mentioned last year, the benchmark also did well. Of course, we beat the benchmarks that we had — that’s why we had incentive fees. But vis-a-vis the benchmark, I think ’22 was a good year and a slightly better year as we came in from 2021 also with the low benchmarks, and we did hit for some accounts. We have different SMAs and some accounts the way that you count the benchmark whatever in 2022, we did a little better. There’s not much difference there, but it is an SMA by SMA. And again, in some SMAs, even though the absolute numbers for the performance in ’22, they were a little lower for some of the SMAs, we were beating the benchmark more than we did this year. And that generates then more incentive fees. And Ana, please emit me here if I I do not mention anything important.
Ana Russo: I think that’s definitely clear in our incentive fee this year was really concentrated on our credit vertical, okay? So that I just want to highlight that. And there is this concentration this year also sites from last year, which happened in the 2 verticals, credit and public debt.
Operator: Our next question comes from the line of William Barranjard with IT BBA.
William Barranjard: So the first one, you comment briefly regarding the possibility to reach the 35 billion AUM 1 year earlier, so end of 2024. My question here is regarding the overall management fee rate. Do you expect any changes here? Or should maintain at the 1.2% that we see currently? And my second question is related to expenses. So could you go through the dynamics of personnel expenses in the new share-based compensation programs in this quarter? I guess I would like to understand how much of the $12 million in equity compensation would be translated into personnel expenses if this program was not in place. And I mentioned during the call that 60% of cash bonus could be converted into shares. So I guess, is this the only adjustment then? Or is there any other dynamics here?
Alex Saigh: Okay. Well, on the program itself, I can — I just want to say a couple of words and then turn over the floor to Ana here, let me explain in more detail. It is a compensation program that is in addition to other programs that we had. And what we wanted to do here is put up a program that is voluntary. It’s not an obligation. Any of our partners and managing directors, they can opt to this program or not. If they opt to the program, whatever, up to 50% of the bonus that this person commits to the program, we will match the same number of dollars in pattress shares. In order for this person in order to be eligible to the program, this person has to vest these shares and its best year in your 3 year, year-on-year, 4 year in year 5.
So it’s — first of all, it’s in addition to thing that we have. Secondly, it has a lot to do with the retention. I think we are a people business and retaining people in this business is extremely important. We already had significant carry programs, right, which is normal of our business, distributing part of the performance fees to employees. As you know, we call this our carry program. I also wanted to give the senior executives shares of the listed company. We really haven’t done that since the IPO. We introduced this program now. So a senior employee, a senior executive at Patria will have carry and now this program that I just mentioned. Of course, it’s a retention because the person has to stay in order to be able to obtain the program.
We have this program already going on even as a private company. Of course, we readdressed the program as a public company, and we had annual valuations, and we would buy and sell shares from partners and managing directors, more or less the same mechanics that I just described, but instead of having a public valuation, we had a private valuation, someone come in and actually do the valuation once a year for us. And now with the valuation that we traded shares between us and and paid bonuses in shares in the senior executives. So similar mechanics, of course, different now that we are a listed company, and it works a lot in retention. Ana, do you want to give some more detail on the program itself, please?
Ana Russo: Yes. Let me just give me a or a full overview about that. And I think, first of all, I think we are all in the comp very — really have for the launch of that and the acceptance that we have across the company. I think this program is consistent with our industry and peers. And as Alex mentioned, is retain, but also attracted talent to the company as we move — and this program was launched in 2023 is we work to support our engagement and long-term commitment for the team, and we are able to expand that as we grow, as we have new M&A. So this is actually could be expandable and it’s a very strong program. As Alex mentioned, this is a tote that includes our partners and mainly partners on MDs, and this gives the opportunity for the people to direct part of their cash or 50% of the cash bonds as mentioned before, into this program and to have a matching component at that.
This is a program that it will be offered going forward because this is part of now of our normal program. And has evolved, actually, when we launched in Q3, as mentioned in previous quarter, has actually had a really great acceptance across. And that’s why in — you see that in Q4, there was a much complete catch-up of that in terms of the program and how we accounted for. So when you mentioned about this $12.4 million, and I could say that when you look into that in terms of this matching program, then we complete account for this line in the fourth quarter, it accounts about 70% of that is related to this matching program that we are considering. Okay. So I don’t know if that help you to understand the project.
Alex Saigh: Yes. If I can also complement this we designed this at the IPO, to be honest. And we already have impeded that we were going to give this out over the 3 years after the IPO. So it’s a program that was already written it was already there in our perspective that that we were going to give out up to the prospectus as up to 5% that we can actually give out in employee compensation. We haven’t even reached half of that number yet, whatever it’s a very, very small number that we had. But yes, it’s something that we have already incorporated in our numbers since ’21, ’22, ’23, and we knew that we were going to actually effectively do this in the end of ’23. So it was already a planned thing and already talked to our partners for a while now for the last 2, 3 years that we have been designing and talking to them about this program. What was the second part of your question again, I’m sorry. That was the first part.
William Barranjard: And the first part was just regarding the management fee rates as you reach your target of $35 million.
