Business context and reporting period
Patria Investments Limited (Nasdaq: PAX) is a Cayman Islands-based alternative asset manager focused on Latin America, with private equity, infrastructure, credit, public equities, real estate, and advisory and distribution businesses. This Form 20-F covers the fiscal year ended December 31, 2023, with comparative figures for 2022 and 2021. Although the request metadata refers to 2022 Q4, the filing is an annual report for FY2023, not a quarterly filing. Financial statements are prepared under IFRS as issued by the IASB.
Growth and year-over-year comparisons reflect acquisitions and consolidation changes, including Kamaroopin in April 2023 and the Bancolombia real estate arrangement in November 2023; results may not be fully comparable with prior periods.
Financial and operating performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenue from services | US$327.6 million | US$258.9 million | +26.5% |
| Net income before income tax | US$118.0 million | US$102.5 million | +15.2% |
| Consolidated net income | US$120.8 million | US$94.1 million | +22.1% |
| Net income attributable to owners | US$118.4 million | US$93.0 million | +27.3% |
| Operating cash flow | US$156.7 million | US$77.9 million | Increased |
| Fee Related Earnings (non-IFRS) | US$147.7 million | US$130.0 million | +13.6% |
| Distributable Earnings (non-IFRS) | US$187.8 million | US$147.1 million | +27.7% |
Management-fee revenue was US$252.9 million, up 13.2%, supported by acquired businesses and Private Equity Fund VII. Performance-fee revenue rose to US$74.7 million from US$30.4 million, mainly from Infrastructure Fund III and Private Equity Fund V. Incentive fees fell to US$4.1 million from US$6.1 million. Personnel expenses were US$78.8 million; carried-interest allocation increased to US$25.3 million as performance fees rose. General and administrative expenses were US$39.2 million, up from US$31.2 million. The filing does not provide a single operating-margin measure.
Total AUM increased 16.9% to US$31.8 billion; fee-earning AUM (FEAUM) increased 24.7% to US$23.9 billion. Net accrued performance fees were US$534.9 million, versus US$477.7 million under the comparable revised methodology. AUM growth reflected acquisitions, fundraising, fund valuations and favorable foreign exchange, partly offset by realizations, distributions and redemptions.
Cash, cash equivalents and short-term investments totaled US$220.6 million at year-end, including US$187.4 million held in the restricted SPAC trust account. Cash and cash equivalents alone were US$16.1 million. The company reported no outstanding financial indebtedness at December 31, 2023 and no off-balance-sheet arrangements. It reported US$25.0 million drawn and US$26.3 million repaid under a credit facility during 2023; a separate facility had US$75 million of undrawn availability at year-end. Dividends paid to shareholders were US$145.1 million in 2023, compared with US$103.3 million in 2022.
Material changes versus the prior comparable period
- Revenue growth included a US$44.4 million increase in performance fees and higher management fees; acquired businesses and Fund VII contributed to recurring fee growth.
- Net financial results shifted from US$8.1 million income in 2022 to a US$1.7 million expense in 2023, reflecting lower unrealized gains and derivative-related losses.
- Income tax was a US$2.8 million benefit in 2023, versus US$8.3 million expense in 2022, primarily reflecting deferred tax effects from VBI option arrangements; the reported effective tax rate was negative 2.4%.
- Cash provided by investing activities was US$62.2 million in 2023, compared with US$189.3 million used in 2022, when the SPAC trust funding was a major use. Financing activities used US$229.6 million in 2023, mainly due to dividends and SPAC shareholder redemptions.
- Intangible assets increased to US$487.0 million from US$411.5 million, and goodwill to US$311.2 million from US$276.8 million. No goodwill impairment was recorded.
Outlook, commentary, risks and unusual items
Management expects to continue expanding through fundraising, new products, partnerships and acquisitions, but provides no quarterly or annual operating-results guidance. It believes available cash, investments and operating cash flows should cover ordinary working capital and capital expenditure needs for the next 12 months; funding further inorganic growth may require a mix of cash, equity and/or credit lines. Capital expenditures were US$45.2 million in 2023, and management expects them to rise to support growth.
The company intends to distribute approximately 85% of Distributable Earnings, subject to board discretion and legal, liquidity and business needs. Beginning in Q1 2024, it may retain up to US$100 million of the performance-related portion to fund M&A obligations and repay debt. A US$59.9 million dividend was approved in February and paid in March 2024.
Key announced transactions include the abrdn private equity solutions acquisition, for consideration of up to GBP100 million, subject to closing conditions and regulatory approvals, and the Credit Suisse real estate business acquisition for up to R$650 million. The latter closed in March 2024; transfer of underlying funds was still in process as of the filing. The SPAC’s business-combination deadline was extended to June 14, 2024; after redemptions, its trust held approximately US$180 million. The filing states no target had been selected as of December 31, 2023.
Key risks include Latin American political, economic, inflation, interest-rate and currency volatility; difficulty raising or deploying capital and realizing investments; performance-fee volatility and possible clawbacks; valuation uncertainty in illiquid assets; competition and fee pressure; acquisition integration and funding needs; regulatory, tax, litigation, cybersecurity, privacy and climate-related risks; and concentrated voting control. Brazilian and Chilean operations and portfolio investments are particularly exposed to local macroeconomic and political developments.
As of December 31, 2023, no provision was recorded for four civil proceedings with an estimated aggregate amount of US$93.5 million, which management said were unlikely to have a material adverse impact. Eight labor proceedings totaled US$2.8 million and were also considered unlikely to have a material impact. Eleven tax and social-security matters were assessed as remote or possible, with no provision recorded. These assessments are subject to uncertainty. The audit included critical audit matters concerning Moneda goodwill impairment estimates and recognition of performance-fee revenue. The auditor gave unqualified opinions on the IFRS financial statements and internal control over financial reporting; management also concluded controls were effective, excluding certain 2023 acquisitions from its assessment.
Important facts for investors to verify
- Reconcile the request’s “2022 Q4” label with the filing’s actual FY2023 reporting period and confirm comparisons use the revised net accrued performance-fee methodology.
- Review the quality and timing of performance-fee recognition, including the US$74.7 million recognized in 2023, related carried-interest costs and the auditor’s critical audit matter.
- Assess overdue and postponed management-fee receivables: the filing reports US$86.7 million overdue at year-end, expected to be recovered subject to fund asset realizations and cash needs.
- Distinguish unrestricted liquidity from the US$187.4 million restricted SPAC trust balance; verify facility availability, acquisition payments and any subsequent debt drawdowns.
- Track the SPAC’s June 14, 2024 deadline and status, the abrdn acquisition closing and consideration, and completion of the CSHG underlying-fund transfers.
- Review the US$93.5 million civil claims and possible tax exposures, as well as the assumptions underpinning goodwill valuations and VBI put-option obligations.
- Consider dividend discretion and the proposed retention of up to US$100 million, and the effect of Patria Holdings’ reported 83.2% voting power on minority shareholders.