Patria Investments Limited — Form 20-F summary
Period clarification: The supplied filing is Patria’s annual report for the fiscal year ended December 31, 2021, not a 2020 Q4 filing. It presents audited IFRS results for 2021, 2020 and 2019. Amounts below are in U.S. dollars unless stated otherwise.
Business context
Patria is a Latin America-focused alternative asset manager. Its products span private equity, infrastructure, credit, public equities, real estate, and advisory and distribution. On December 1, 2021, Patria completed its combination with Chile-based Moneda Asset Management and began consolidating Moneda from that date. Consequently, 2021 results include only one month of Moneda operations; comparisons with prior years are not like-for-like. The financial statements were audited and prepared under IFRS as issued by the IASB.
Key financial and operating metrics
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Net revenue from services | $235.5 million | $115.0 million | Up 104.8%; includes $89.3 million performance-fee revenue in 2021, chiefly from PBPE Fund III. |
| Gross profit | $148.8 million | $81.8 million | Gross margin approximately 63.2%, versus 71.2% in 2020. |
| Operating income before net financial expense | $121.9 million | $65.2 million | Operating margin approximately 51.7%, versus 56.7% in 2020. |
| Net income | $121.2 million | $61.8 million | Up 96.0%; net margin approximately 51.5%, versus 53.8%. |
| Fee Related Earnings (non-IFRS) | $86.0 million | $71.3 million | Up $14.7 million, or 20.6%. |
| Distributable Earnings (non-IFRS) | $141.3 million | $70.3 million | Up $71.0 million; includes adjustments, including realized performance fees and add-backs. |
| Operating cash flow | $107.6 million | $52.7 million | Cash generated from operations increased. |
| Cash and cash equivalents; short-term investments | $15.3 million; $151.9 million | $14.1 million; $9.9 million | $167.1 million combined at year-end 2021. Separately, $78.2 million of client funds on deposit is matched by client funds payable. |
| Financial indebtedness | None | None | Lease liabilities were $7.9 million at year-end 2021. |
| AUM; Fee Earning AUM | $23.8 billion; $17.9 billion | $14.4 billion; $7.7 billion | AUM rose $9.4 billion, mainly due to Moneda, valuation gains and fundraising; FEAUM rose $10.2 billion, including $8.7 billion from Moneda. |
| Net accrued performance fees | $348.1 million | $276.4 million | Increase reflected valuation gains, partly offset by realizations and Brazilian real depreciation; accrued amounts are not equivalent to cash received. |
Net income attributable to owners of the Company was $122.5 million in 2021; consolidated net income was $121.2 million. The filing reports no debt borrowings at year-end. Its cash-flow statement records $284.2 million used in investing activities, including the Moneda acquisition and investment purchases, and $177.9 million provided by financing activities, including IPO proceeds and dividends.
Material changes versus prior periods
- Revenue growth reflected both higher management fees ($144.7 million, up 28.2%) and $89.3 million of performance fees, which were nil in 2020. Performance-fee revenue is variable and subject to fund performance and recognition criteria.
- Costs of services rose to $86.8 million from $33.2 million. This included $30.2 million of carried-interest allocation and higher personnel expenses, which management attributed in part to the post-IPO compensation structure.
- Other expenses increased to $12.5 million from $2.0 million, primarily reflecting Moneda transaction costs and IPO-related costs. Administrative expenses were broadly stable at $14.4 million.
- Patria’s AUM expansion was substantially acquisition-driven: Moneda added credit, public equities, and advisory and distribution assets. Credit AUM rose to $5.0 billion and public equities AUM to $2.2 billion at year-end.
- The company raised $302.7 million net of IPO transaction costs from its primary IPO issuance. The secondary share sale proceeds went to selling shareholders, not Patria.
Outlook, risks and unusual items
- Patria stated that available cash, investments and operating cash flows should be sufficient for ordinary working-capital and capital-expenditure needs for the next 12 months. It did not provide numerical earnings guidance and says it does not provide quarterly or annual operating-results guidance.
- Management’s strategy is to expand AUM, fundraising, product offerings and distribution, including through acquisitions and partnerships. The filing describes the February 2022 acquisition of a 40% interest in Kamaroopin and a second-stage acquisition contingent on fundraising success; these are post-period developments.
- Management reported that COVID-19 had not significantly affected the Group’s business or results to date, while warning that continued pandemic effects, market volatility, reduced fundraising or realizations, and portfolio-company stress could adversely affect future performance.
- Material risk exposures include Latin American political and economic conditions, currency depreciation, inflation and interest rates, fund performance and valuation uncertainty, fundraising and fee pressure, competition, key-person retention, conflicts of interest, cybersecurity, regulation and litigation. The Brazilian real depreciated 7% against the U.S. dollar in 2021, affecting the U.S.-dollar value of local-currency assets.
- Moneda acquisition accounting was provisional at filing: it added $244.4 million of goodwill and $101.2 million of acquired identifiable intangible assets, and involved contingent consideration with a reported fair value of $25.5 million and a maximum undiscounted amount of approximately $71.1 million. A further $58.7 million is payable to former Moneda shareholders for future services and is recognized as compensation as services are rendered.
- At year-end, Patria reported no probable-loss litigation provisions. It disclosed civil claims totaling approximately $7.2 million and labor proceedings totaling approximately $2.0 million, with no reserves recorded; it also disclosed possible tax matters, including assessments relating to PIS/COFINS, social security contributions and municipal service taxes.
- Management said previously reported material weaknesses in internal control over financial reporting were remediated as of December 31, 2021. Moneda was excluded from management’s internal-control assessment because there was insufficient time to assess it after the December acquisition. The auditor did not attest to internal controls.
The company paid $119.8 million in dividends during 2021 and stated an intention to distribute approximately 85% of Distributable Earnings, subject to board discretion, legal and solvency requirements, business needs and other restrictions. A $23.6 million dividend was paid in March 2022.
Important facts for investors to verify
- Confirm the reporting-period mismatch: this is a 2021 annual Form 20-F, not a 2020 Q4 report.
- Separate recurring management-fee earnings from the one-off timing and volatility of performance fees; review the IFRS reconciliation of FRE and DE and the assumptions behind accrued performance fees.
- Assess the full-year pro forma contribution, integration progress, purchase accounting, contingent consideration and service-related payments for Moneda; 2021 includes only December operations.
- Review cash-flow and liquidity detail, including the distinction between company funds and client funds, acquisition and investment spending, lease liabilities, and future dividend or acquisition commitments.
- Check the status and outcomes of disclosed tax and civil matters, and whether Moneda’s internal controls and the remediated controls remain effective.
- Consider the concentrated voting structure: Class B shares carry ten votes each, and Patria Holdings held approximately 83.3% of voting power at year-end 2021.
- Verify the sustainability of the dividend policy and the effects of currency, fund marks, realizations, fundraising and fee levels on future distributable cash.