Patria Investments Limited — FY2020 Form 20-F Summary
Business context and reporting period
Patria is a Cayman Islands-based private markets investment firm focused primarily on Latin America, with private equity, infrastructure, real estate, credit and constructivist equity products. The filing covers the year ended December 31, 2020 and presents audited consolidated financial statements under IFRS as issued by the IASB, in U.S. dollars.
At December 31, 2020, Patria reported US$14.4 billion of assets under management, US$7.7 billion of fee-earning AUM, 16 active funds and more than 55 portfolio companies and assets. Approximately 90% of AUM was concentrated in private equity and infrastructure.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue from services | US$115.0 million | US$123.2 million | Down 7% |
| Management-fee revenue | US$112.9 million | US$104.9 million | Up 8% |
| Incentive-fee revenue | US$3.5 million | US$18.1 million | Down 81% |
| M&A and monitoring fees | US$2.5 million | US$1.0 million | Up 150% |
| Gross profit | US$81.8 million | US$80.2 million | Up 2% |
| Operating income | US$65.2 million | US$64.6 million | Up 1% |
| Net income | US$61.9 million | US$60.9 million | Up 2% |
| Net income attributable to owners | US$62.2 million | US$58.5 million | Up 6% |
| Fee Related Earnings, non-GAAP | US$71.3 million | US$63.0 million | Up 13% |
| Distributable Earnings, non-GAAP | US$70.3 million | US$63.4 million | Up 11% |
Approximate 2020 margins were 71.2% gross, 56.7% operating and 53.8% net, compared with approximately 65.1%, 52.4% and 49.4%, respectively, in 2019. The improvement primarily reflected lower personnel costs and lower administrative expenses, despite lower total revenue.
- Personnel expenses declined 26% to US$27.2 million, principally because 2019 included higher rewards and bonuses associated with incentive fees.
- Administrative expenses declined 7% to US$14.6 million, mainly due to lower travel expenses.
- Other expenses included US$2.2 million of IPO-related expenses and bonuses in 2020.
- The effective income tax rate decreased to 4.8% from 5.5%.
Cash flow, balance sheet, debt and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Operating cash flow | US$52.7 million | US$44.5 million |
| Investing cash flow | US$23.5 million | US$11.3 million |
| Financing cash flow | (US$66.2 million) | (US$53.8 million) |
| Cash and cash equivalents | US$14.1 million | US$4.1 million |
| Cash, cash equivalents and short-term investments | US$24.0 million | US$37.2 million |
| Total assets | US$107.2 million | US$114.9 million |
| Total liabilities | US$48.1 million | US$26.1 million |
| Total equity | US$59.1 million | US$88.8 million |
Patria reported no outstanding financial indebtedness at December 31, 2020 or 2019. Lease liabilities totaled US$1.6 million at year-end 2020. Management stated that available cash, investments and operating cash flows were sufficient for ordinary working-capital and capital-expenditure needs for the following 12 months.
Capital expenditures were US$1.4 million in 2020. Dividends paid were US$64.5 million in 2020, compared with US$46.9 million in 2019. The stated dividend policy targets approximately 85% of Distributable Earnings, subject to board discretion, legal requirements, cash needs, investment requirements and potential clawback obligations.
Material changes versus prior comparable periods
- AUM declined 2% to US$14.4 billion from US$14.7 billion. The principal offsets were foreign-exchange effects of US$2.6 billion and divestments of US$1.0 billion, partly offset by US$1.4 billion of new capital raised and US$1.6 billion of valuation gains.
- Fee-earning AUM increased 12% to US$7.7 billion, driven by new capital raised for private equity and infrastructure funds and additional capital deployment, partly offset by divestments, fee-basis changes and foreign-exchange effects.
- Non-realized performance fees decreased to US$276.4 million from US$291.8 million, primarily due to Brazilian real depreciation and COVID-19-related effects on portfolio-company valuations.
- Management fees grew, but the decline in incentive fees more than offset that growth. The 2019 incentive-fee result included an unusually large recognition from the conversion of the Constructivist Equity Fund to a perpetual structure.
- The Brazilian real depreciated materially against the U.S. dollar during 2020, reducing the U.S.-dollar value of Brazilian assets and performance-fee balances.
- Patria transferred its jurisdiction of incorporation from Bermuda to the Cayman Islands in October 2020 and completed a corporate reorganization involving Blackstone and founder-related interests.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide formal quarterly or annual earnings guidance. Management’s outlook emphasizes continued AUM growth, expansion of private markets products and distribution, increased perpetual capital, strategic partnerships or acquisitions, and use of the platform to improve profitability.
Subsequent to year-end, Patria completed its initial public offering in January 2021. It issued 19.1 million Class A shares and received approximately US$302.7 million of net proceeds after bank fees. Class A shares began trading on Nasdaq under the symbol PAX. The filing also describes the planned roll-up of remaining non-controlling interests in Patria Brazil and the proposed launch of a Latin America-focused SPAC.
- COVID-19 created risks to fundraising, deployment, realizations, portfolio valuations, liquidity, employee continuity and cybersecurity. Management stated that the direct impact on 2020 results was not significant and that COVID-19 did not create material going-concern uncertainty.
- Key structural risks include dependence on management and performance fees, volatile realizations, fee pressure, fundraising and deployment risk, valuation subjectivity, competition, key-person retention, foreign-exchange volatility and political, regulatory and economic conditions in Brazil and Latin America.
- Patria identified material weaknesses in internal control over financial reporting, including insufficient risk-and-control documentation, monitoring processes and formal review and approval controls for financial statements and manual journal entries. Management had begun a remediation plan; disclosure controls were not effective as of December 31, 2020.
- There were no provisions for probable legal losses. The company disclosed possible tax, labor, civil and regulatory exposures, including Brazilian tax matters with estimated amounts of approximately US$5.0 million and US$1.9 million, plus other possible tax and social-security matters.
- The company has a dual-class structure. Patria Holdings controlled all Class B shares, representing approximately 93.8% of voting power after the IPO, while Class B shares carry 10 votes per share.
- Financial statements were audited by Deloitte with an unqualified opinion on the IFRS consolidated financial statements; the auditor was not engaged to audit internal control effectiveness.
Most important facts for investors to verify
- Whether management-fee growth and higher fee-earning AUM can offset volatility or weakness in incentive and performance fees.
- The sustainability and realizability of the US$276.4 million non-realized performance-fee balance.
- Progress in remediating the disclosed material weaknesses and whether future Section 404 reporting identifies additional deficiencies.
- The effect of Brazilian real and other Latin American currency movements on AUM, portfolio valuations, performance fees and reported earnings.
- Cash available after the IPO, dividends, fund commitments, acquisitions and any future strategic investments.
- The terms and completion status of the corporate reorganization and its effect on ownership, non-controlling interests and earnings attributable to shareholders.
- The board’s actual dividend declarations versus the stated approximately 85% of Distributable Earnings target.
- Possible outcomes of disclosed Brazilian tax proceedings and other contingent liabilities.
- The governance implications of the controlled-company and dual-class share structure, including the limited influence of Class A shareholders.