Business Context and Reporting Period
Vinci Partners Investments Ltd. filed an annual Form 20-F for the fiscal year ended December 31, 2020. The Cayman Islands holding company was incorporated in September 2020 and had not commenced operations before the corporate reorganization and IPO. The reported financial statements are those of its Brazilian operating subsidiary, Vinci Partners Investimentos Ltda., prepared under IFRS in Brazilian reais.
Vinci is a Brazil-focused alternative asset manager and financial advisory firm with private equity, public equities, investment products and solutions, infrastructure, real estate, credit, hedge funds and financial advisory businesses. It had 215 full-time employees at year-end and reported approximately R$49.8 billion of AUM, including approximately R$0.9 billion of inter-segment double counting; AUM excluding such double counting was approximately R$47.5 billion.
Key Financial Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Gross revenue from services | R$359.2 million | R$311.1 million | 15.5% |
| Net revenue from services | R$339.9 million | R$296.7 million | 14.6% |
| Net revenue from fund management | R$271.3 million | R$223.8 million | 21.2% |
| Net revenue from realized performance fees | R$29.9 million | R$45.9 million | Decrease |
| Net revenue from unrealized performance fees | R$9.9 million | R$16.1 million | Decrease |
| Net revenue from advisory | R$28.8 million | R$10.9 million | 164.9% |
| Operating profit | R$215.6 million | R$183.4 million | 17.6% |
| Profit for the year | R$169.2 million | R$155.6 million | 8.7% |
| Net profit margin | 49.8% | 52.5% | Down 2.7 percentage points |
| Fee-related earnings | R$181.9 million | R$124.5 million | 46.1% |
| FRE margin | 60.6% | 53.0% | Up 7.6 percentage points |
| Distributable earnings | R$162.0 million | R$135.2 million | 19.8% |
| Adjusted distributable earnings | R$127.3 million | R$97.7 million | 30.3% |
| Adjusted profit | R$131.5 million | R$113.7 million | 15.7% |
Cash and cash equivalents were R$83.4 million at December 31, 2020, compared with R$3.9 million a year earlier. Net cash flow from operating activities was R$195.3 million, compared with R$132.3 million in 2019. The filing reports R$75.3 million of net cash generated from investing activities, primarily reflecting the redemption of mutual fund investments and reinvestment in certificates of deposit.
Financing activities used R$193.5 million, including R$176.3 million of dividends paid to quotaholders. Total lease liabilities were R$106.2 million on an undiscounted basis, with no material conventional borrowings reported at year-end. Net debt as calculated in the financial statements was negative R$182.1 million, reflecting payables and lease liabilities exceeding cash and liquid investments.
Material Changes Versus Prior Period
- AUM increased 36.9% excluding double counting, from R$34.7 billion to R$47.5 billion. Including double counting, reported AUM was R$49.8 billion.
- Growth was driven by R$7.1 billion of net inflows and R$4.0 billion of appreciation, partly offset by approximately R$2.8 billion of redemptions following the dissociation from GAS Investimentos.
- Management-fee revenue increased substantially, particularly in public equities, investment products and solutions, and real estate. Advisory revenue rose sharply due to larger or more numerous completed transactions.
- Performance-fee revenue declined, particularly in public equities, infrastructure, investment products and solutions, and private equity. Performance-related earnings declined 42.7% to R$33.7 million.
- Operating expenses increased 9.7% to R$124.2 million, primarily because of higher personnel and profit-sharing expense and third-party services. Travel expense declined because of COVID-19 restrictions.
- Net investment income fell 55.2% to R$9.1 million, and net finance income changed from a R$8.9 million gain to a R$3.0 million loss.
- The 2019 comparison includes a non-recurring R$25.9 million net Vinci Capital Partners III catch-up management fee, making private-equity and total-revenue comparisons less representative.
Guidance, Outlook, Risks and Unusual Items
Management does not intend to provide earnings guidance. The company expects AUM growth to remain favorable, supported by low or negative real Brazilian interest rates, migration from fixed income toward alternative investments, new products, fundraising and expanded distribution. The filing also describes post-year-end fundraisings, including R$1.0 billion for the VIR IV impact strategy, R$480 million for an industrial REIT, R$381 million for an industrial development strategy and R$256 million for a water and sanitation strategy.
COVID-19 disrupted portfolio companies, including Brazilian shopping malls, and caused market and valuation volatility. Management stated that Vinci increased AUM, revenue and profit in 2020 and recorded no COVID-related impairment, but warned that future effects remain uncertain. Brazil's 2020 GDP contracted 4.1%, and the real depreciated substantially against the U.S. dollar.
- Internal control over financial reporting and disclosure controls were ineffective at December 31, 2020. Material weaknesses involved accounting resources, systems access, computer operations, public-company financial-reporting supervision, training, closing processes and revenue recognition controls. Management had begun a remediation plan.
- Liquidity requirements include R$5.2 billion of remaining unfunded commitments to investment funds, in addition to operating expenses, potential contingencies and investment seeding requirements.
- Reported legal contingencies classified as possible losses totaled approximately R$24.1 million, comprising R$22.2 million of tax and social-security matters and R$1.9 million of labor matters; no provision was recorded because losses were not considered probable.
- Key business risks include market and AUM volatility, performance-fee variability, competition, fundraising and client-retention risk, valuation uncertainty for private assets, Brazilian political and economic conditions, interest-rate and foreign-exchange movements, regulation, cybersecurity, litigation, tax changes and dependence on key personnel.
- Gilberto Sayão da Silva owned all Class B shares, representing approximately 77.3% of voting power. The dual-class structure materially limits the ability of Class A shareholders to influence corporate matters.
Most Important Facts to Verify
- Reconcile reported AUM of R$49.8 billion with fee-earning AUM of R$47.6 billion and the approximately R$47.5 billion figure excluding double counting.
- Assess the sustainability of recurring management-fee growth separately from realized and unrealized performance fees and from transaction-dependent advisory revenue.
- Review remediation progress for the material weaknesses and confirm whether disclosure controls and internal control over financial reporting have become effective.
- Evaluate liquidity against the R$5.2 billion of unfunded commitments, R$106.2 million of lease obligations and the company's dividend policy.
- Review the tax and labor contingencies, particularly the R$15.3 million tax proceeding and the total R$24.1 million of possible-loss matters.
- Confirm the final IPO share count and proceeds. The filing describes the January/February 2021 offering inconsistently in different sections, although it reports net proceeds of approximately US$252.2 million in the presentation section.
- Consider the effect of the 28.9% 2020 depreciation of the Brazilian real on U.S.-dollar returns, reported AUM and foreign-currency fund performance.