Hello everyone, I'm Andre Medina, leading shareholder relations at Patria, and welcome to the third edition of our PAX Talks, an investor-driven deep dive into our Global Private Markets Solutions business, or GPMS, and how we generate alpha in middle-market private equity. We're very happy to have with us today, leading the Q&A, Charles Queenan. Charles is a Portfolio Manager at Long Light Capital, where he has led the firm's public markets portfolio since 2018. He previously worked at Blackstone and holds a bachelor's degree from MIT. From Patria, we're very pleased to welcome Merrick McKay, Partner and Head of Private Equity for GPMS. Merrick is a member of our Management Committee and the GPMS Investment Committee. He's an advisory board member of numerous funds, a regular speaker at private equity conferences, and a board member of Invest Europe, Europe's private equity trade body.
An Australian with British dual nationality, Merrick has over 30 years of experience in the European private equity industry. This will be a fireside chat Q&A format. If you have questions, each of you will have the opportunity to submit them, and we will try to get through as many as we can. Of course, before we get started, I have to make some introductory remarks. I have to read the obligatory forward-looking statement. I'd like to remind everyone that today's call may include forward-looking statements which are uncertain, do not guarantee future performance, and undue reliance should not be placed on them. Patria assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve risks, including those discussed in the risk factors of the latest Form 20-F annual report.
Also, note that no statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any Patria fund. With that out of the way, let me start by framing and putting some perspective on our GPMS platform and why it is important to our investors before turning it over to Charles and Merrick. Our Global Private Markets Solutions business, as of the second quarter, had $13.9 billion of AUM, of which $11.4 billion were fee-earning AUM, $1.4 billion were pending fee-earning AUM, and $3 billion were uncalled capital. The platform invests mainly in middle-market private equity primaries, secondaries, and co-investments in Europe and to a lesser extent in the U.S., offering its clients multiple products and structures, including SMAs, commingled funds, and a listed trust.
The listed trust, Patria Private Equity Trust, or PPET, is traded at the London Stock Exchange and represents over $1.6 billion of permanent capital fee-earning AUM to Patria. Since April 2024, when Patria closed the carve-out acquisition of Aberdeen's middle-market private equity solutions business, which was the base for the creation of this strategy, it has raised over $3.5 billion. From a financial perspective, as of the second quarter, the business generated approximately 17% of our management fee revenues, and we definitely view GPMS as a key component of our growth strategy. On our December 9th Investor Day, we indicated that we believe GPMS fee-earning AUM can close to double within the next three years. With that as a backdrop, let me now turn it over to Charles and Merrick. Guys, thank you for doing this, and it's all yours.
Wonderful. Thanks, Andre, for that introduction. Merrick, we don't have a ton of time, but it'd be great to just hear a bit about your background. How did you end up running the private market solutions business at Aberdeen?
Thanks, Charles, and thanks for the introduction, Andre. I'll try and keep this short. As Andre mentioned, Australian dual British nationality. I came over to the U.K. in 1992. I got a job in a corporate finance advisory advising in the private equity market. Five years doing that, then 13 years as a direct investor at a company called Primary Capital, which was very much low-end market private equity. A bit of a midlife crisis in 2010. Didn't know what else to do. Ended up joining Macquarie for a short period of time to join the dark side as being an LP. That then quickly morphed into that business joining what was called Standard Life Capital Partners, part of Standard Life, a very large U.K. institution, and been investing in European and U.S. private equity for many, many years. In 2017, it was 2014.
In 2017, Standard Life and Aberdeen, two large Scottish institutions, merged. Both businesses had private equity divisions, and that came together. I was leading the European business for that from 2019 onwards. I think we'll come on to a bit that after a few years there, it was pretty apparent that Aberdeen probably wasn't the right home for what we did for various reasons. A decision was taken, certainly with our support, that we should seek a new owner. Hopefully that's helpful.
Yeah, no, that's great. Good segue. You know, walk us through how the carve-out came about. When did you start talking to the Patria guys? Just, you know, starting at the beginning, what's the story of that transaction?
Yeah, so try to keep it succinct. There were a number of things that we needed as a business to succeed in the future. Taking sort of the ownership agnostic about it, we really put it to Aberdeen and said, look, here are the things that we need to succeed. A lot of this was around distribution. I think that, as many would recognize, the public market model is very, very different to private markets. That needs a separate type of process. There were challenges around we needed investment in systems and in people. It was really a decision that you need to invest in that or we need to go elsewhere. They took the quite reasonable decision to seek an exit.
I think at that point in time, it was looking to put us with some other parts of the business to sell, which we thought was going to be pretty, pretty challenging. After a period of time, came back to really just our part of the business, which was principally the European private equity business, but with a small part of the U.S., which I'll come back to. What was interesting for us is, with one exception, I would say, every client that we had had really been backing our team. We had very close relationships. We talked to our clients all the time. We made them aware of where we were on things. We were very mindful of wherever we needed to be, there needed to be somewhere that they were happy with. Really, it was the other way around.
I think their view was they would be happy if we were happy. That put us in a really, I think, strong position. There was no way this was a people business that you can go and sell that over our heads. It gave us a very strong position in the sense of who we're talking to and how that came about. That was very helpful. I think, candidly, when Patria's names were mentioned, I'm sort of embarrassed to say that I think a lot of the team hadn't heard of Patria. Our initial thoughts were, Patria LATAM, direct business, why? We listened, and there were a number of things that over time, I think, really resonated with us on how they were approaching this, how they viewed the opportunity, particularly around LATAM, looking outside, very entrepreneurial, and able to move very, very quickly.
We got really comfortable with Patria and vice versa. Coming back to about that timing, I think, Charles, our discussions, I think, with Patria really started in earnest in early 2023. I think there was exclusivity in mid-2023. We signed, I think the transaction was signed in October 2023 and then completed. It was quite a long period for regulatory reasons and investor consent and so forth, and completed in April last year.
Great. Let's double click on the LPs there. How did the LPs think about the transaction? What rights did they have given the change of control? If we had five of the LPs around the table, we were talking to them, what would they say about the journey and, yeah.
I think you can put them in two very broad buckets, Charles. Firstly, the majority of our business currently, our clients, is with SMAs. You can almost forget about the idea of change of control. The beauty of a separate managed account for many large investors is they can modify what they're doing at any point in time. It's their vehicle, and if they don't like what we're doing, they can effectively give us notice. It's not even a change in control. They simply have to be happy with what you're doing the whole time. You have a close relationship with them. On the other side, a number of our pooled products have specific change of control consents, and you have to go through that process. The nature of our business is we're talking to those investors all the time and making sure that they're happy with what they do.
It's a high degree of transparency. With one exception, as I said before, every client that we really had within Aberdeen viewed us as a team. There was one client that actually was an Aberdeen relationship, and it was the only mandate or client that didn't actually transfer or sought to do something else post-acquisition. Very, very high success rate in that. That's what we expected.
Just for context, how many clients roughly do you have?
I think in terms of SMA clients, we have about 20, I think, that are meaningful and are still working. We have a number of different pooled products at different stages with clearly numerous underlying investors.
Makes sense. I guess give us a flavor for who are your LPs, who are your clients, and you know, why would they choose to partner with the private market solutions business versus just saying, okay, I want to allocate, you know, this amount of money to private equity. I'm going to give it to, you know, give all of it to some big private equity manager.
You could spend a lot of time talking about that. Again, let's separate that into two different areas. If we think about something like a pooled product and one that has been very successful for us for a period of time, our what we call SOF series, Secondary Opportunities Fund series, which has just finished investing its fourth vintage, has been very, very successful. That's out there effectively, I think, if you like, competing. It's a secondaries vehicle. Inevitably, when you're talking to investors, there are people who would be wanting to invest in a pooled product as opposed to something else. I think by definition, they are attracted to the secondaries market. There's an inevitability that they'll be comparing what you're offering against other secondary managers. On the other hand, as I mentioned before, a lot of our business is with SMAs.
These will typically be investors who are large enough and sophisticated enough to want to have a strategy which is targeted at a certain area that we have expertise in, but don't have the teams or the people to be able to execute that themselves. You can get a broad range of solutions there. We have, for instance, a U.S. public pension plan that is very taken by, fundamentally believes in the mid-market as a place to be investing. From a U.S. perspective, they're very comfortable with covering that themselves. When they look at Europe, they realize there's no way they can do that. They want to work with somebody who can provide that offering and work very closely with them. That would be one example.
Another one would be a Dutch pension plan who is, again, taken very much with the low-end market, but has a very specific aspect of what it's looking to do. Initially, they only wanted to make primary commitments into funds of under EUR 1.5 billion in size. They didn't want to hear that, oh, we've got six great managers this year and two the next. They wanted to have absolute strict vintage diversification, four effectively picks per year. It really does vary. What tends to happen is the clients will have an idea about what they're looking to do, and they'll be marrying it up with effectively our skill set and our ability to do that for them.
If we zoom out at a high level, is it too simplistic to think about, think that the decision kind of comes down to scale, where, you know, if an allocator wants exposure to European middle-market and they don't have, you know, this scale, history, expertise to have built out the team themselves and developed the relationships over decades like you have, that a private market solutions manager like yourself makes sense. Is that kind of the crux of it, or is there something else too?
I'd say generally that is the case. When we're looking at the separate managed accounts market, for us now, where does it start making sense for someone to think about that? Typically, it would be probably $50 million- $100 million is what makes sense from a vehicle and from a cost perspective. That gives them the ability then to have a very tailored approach. Again, how does that fit in effectively with the private equity or private markets allocation that that investor is looking to do? It's interesting, in the past, for instance, we have a number of years ago managed investments for CalPERS. CalPERS, again, knew that it was making very, very large tickets or investments that could do that itself, but recognized, again, maybe from a European context, that was very difficult for them to do.
There's someone who is, you would argue, a very, very sophisticated private equity investor, but just recognizing that it needs that on-the-ground presence to thought. I'd say scale is definitely a big part of it. One of the developments in our market, we've come from effectively the fund-to-funds market, which was, again, large funds, very pretty much straightjacketed with what they could do, with what people could do. Now, I think people can, or institutions can, have a highly tailored program for a lot less than they would have probably 10 or 15 years ago.
Interesting. You touched on that, you know, a number of the clients have a specific view that, you know, they want middle-market exposure, European middle-market exposure, have a view that that is somehow unique or better. Walk us through, you know, why the middle market, what are the benefits, you know, why have you focused the business there over time?
I think it's, for us, again, having been in the market for many, many years and having invested initially in people that were very small and have now become mega managers, we've seen a lot over a long period of time. What we've seen specifically is the mid-market has generated superior returns than the large cap and mega cap market over time. I think we'll come back to talk about this in a minute around cash flow dynamics. The first thing is the returns are fundamentally better. If it didn't, we wouldn't have an offering because so many managers and investors can effectively make those large mega cap investment decisions themselves. It's not difficult to do. It's low value add from our perspective. Why is the middle market a better place to be from investment returns? It's a target-rich environment. There's lower pricing and leverage.
There's far more growth opportunities open to these managers, far more exit optionality. There's lower correlation with public markets. One of the things that has really developed since the last financial crisis, particularly from a European perspective, has been the sector specialization and the genuine operational value add that managers can do now at a much smaller level. Maybe 10 or 15 years ago, the operational value add that people were doing was they had the larger mega cap players. Now it's just really gone right down into small, smaller managers with very specific sub-sub-sector strategies. From a European context now, for instance, rather than in the past, we would have been thinking about things, portfolio construction maybe from a geographic level. Now we can construct things on a very sectoral level.
That ability to add value is a bit of a trite novice term in that mid-market has just pervaded for a long period of time. One of the challenges I think we and others who focus on the mid-market have had for a period of time is that a lot of investors say, yeah, okay, I recognize that the returns may be better, but actually the returns in the large mega cap end of the market have been really good for an extended period of time. Do I need to get that extra return for something that by definition, even if they take us on, requires more effort? What I think we've seen over the past few years is the tide has absolutely turned in our market because you're now seeing private equity returns reduce over time.
Again, I think over time at a premium by definition to public markets, but not at the excessive premium that we were seeing a few years ago. I think that's now forcing people to really look at that area much more. It's interesting. I think if you, something like 50% of private equity fundraising is in funds of $5 + billion , it's very easy to do that. I think it's 80% in funds of $2+ billion . The other thing that has really changed a lot of late, and a lot of investors really have struggled with this, is the cash-on-cash returns of coming back from private equity investors. LPs for a number of years were doing really well up to and just after 2020. They were getting very high returns and very high distributions coming back and people putting more and more money into the market.
This is right across the scene. What we've really seen over the past few years has been a marked drop-off in distribution activity at the larger mega cap end of the market. The IPOs have dried up. They're more reliant on debt to have exits. The sovereign wealth funds haven't been there. Whereas in the mid-market, distributions have definitely declined as well, but have actually held up much more than that part of the market. That's something now I think a lot of investors have really focused on because they've seen that.
Interesting.
There's a lot in there. I hope some of that makes sense.
Yeah. Let's chew on that a bit. You mentioned that historically returns in the middle-market have been higher. Is the dispersion of returns also higher?
Yes, but not to the extent that people think.
I guess I bring it up because I believe in Swensen's book on allocation, he talks about this idea that if dispersion is really high, it makes sense to try and hire a manager that you think can get into the top of that bucket. If dispersion is really low, you want to focus on lower costs. Perhaps one can make the argument that middle-market returns are higher, dispersion is also higher. It makes sense. It would be a reason why someone like CalPERS would select someone like yourself who has the expertise and historic relationships to access that top, the top segment of the returns. Does that make any sense or am I pushing too much there?
No, it does. I'll go back to this point that I think when returns at the large makeup end of the market have been really pretty good, and it's been relatively easy for large allocators to access, and they feel confident about, okay, they're not going to shoot the lights out, but again, they don't think they're going to be in a situation where they're underperforming, losing money. It's an easy decision to make. That's effectively what we're fighting against. There's been a smaller, if you like, set of investors who fundamentally think, okay, is this going to continue in this way? Is there another way of accessing it to give me the control I want that's relatively cheap and worth it? Clearly, the cost of us doing something for that is a fraction of the extra return that they should get from it.
I think with that, the case of, again, we're tending to talk to sophisticated investors. What I mean by that is people who actually understand that there are fundamental differences between private equity and what it'll look like in the future.
Interesting. Not to just put this in public market speak, but is it as simple as, you know, over the last, from 2010 through 2020, maybe even going back before that, there was just a lot of positive beta in the private markets. As interest rates came down, more money flowed in. Because the beta in the private markets was really good, you can make your life simple and just allocate to a big manager. Now, private market beta isn't what it once was, and folks are searching for private market alpha. That's where kind of the middle market comes in. That's where you guys come in, where you have those relationships.
Yes. No, I think that's spot on. As Andre said at the beginning, I've been in the industry for 30 years. I've been through a few cycles. I'd have to say that the last one has been the longest. I don't want to be dismissive, it was relatively easy to make money, or to put it more charitably, there were tailwinds. Everyone recognized it. I think a lot of people started patting themselves on the back. There was definitely an element of beta. Our returns have been very, very strong for a lot of our mandates. I stand back and say, it should be good. We've got to be able to, what are the things we've been able to demonstrate that alpha from our perspective as an indirect manager through our manager selection, our portfolio construction, our co-investment activity? I'm pretty confident we can do that.
That's where I think a lot of people have got tied up and they've done very, very well. Now the tide's turned. It's the old thing about when the tide goes out, you can see who's been swimming naked in that. What I will say is that one of the things I noticed, certainly compared with the last, with the financial crisis, GFC, was that before that, and this is particularly from a European context, I'm not going to speak about the U.S., but really almost everyone, I would say, was a generalist. We're trying to pick numbers on, I would say a huge amount of what they did was PE 101. They were definitely benefiting from multiple arbitrages through positive cycle tailwinds, incentivizing management teams in an appropriate way.
The best managers since then, who come into it, and the only ones who are back, have absolutely brought something else to the table now. To me, there's far more value add that's been brought into the PE model. There's been beta and genuine alpha. For me, there's far more of that now. As I say, it's become more challenging, particularly around the exits. I think people have, the people we back have shown genuine ability to think strategically and add value to their portfolio. When the exit markets have dried up somewhat, particularly the larger mega cap end of the market, that's where it's become more challenging.
Makes sense. Let's double click on some of these relationships. Marco made a really interesting comment on the acquisition call going back to October of 2023. I'm paraphrasing here, but he said something along the lines of, you know, we identified private market solutions as an area that made sense for us, and we wanted to get into it. To get into it, we realized that we basically had to acquire someone because the business is all about relationships. You need to acquire that tenure of relationships. Trying to go and build it yourself would take 20 years. What's the typical duration of the relationships that you have, both on kind of the LP side and the GP side? Maybe we'll start there.
Yeah, so basically you hit the nail on the head there. That relationship is both on our investor side, our clients, and on the investment side itself. On the client side of things, even at the pooled product level, the people coming to invest in a pooled product are not someone that you simply make an investment decision after having met you a few weeks or months previously. They spend their time understanding what you do. When you look at the SMA clients, these are people who really need to develop that over a long period of time. This is a big decision that people make. Those relationships really matter. As demonstrated, I said at the beginning of the call around when we were exiting, how that worked. That takes a lot of time.
On the investment side of things, what we're doing is making typically primary, secondary, and co-investments or a combination of those, and there are definitely different flavors for each of those. In each of those cases, they are into or alongside a GP. Whilst you could turn around and say, right, well, I can simply go and start allocating, I meet different managers. There are literally hundreds of credible and thousands of credible managers you could go and invest in. What we bring to the table is a deep understanding of that addressable market over an extended period of time. Who are the best people in that? When we're working alongside a GP, we know them and they know us very well, and we can triangulate that in many, many ways.
The relationship there that we have with them can lead to a number of very positive benefits for our investors or investment vehicles. Firstly, when it comes to situations where this is a really very strong manager and there's allocation, we'll get more than our fair share because of that relationship. When we look at co-investment activity that we undertake, and just to be clear, a lot of co-investment activity in this market is where, particularly at the large mega cap end of the market, a GP has made an investment. They want to provide some additional capital or reduce the size and that will go to their LP base in quite a syndicated way. They're going to say, look, here's what's available. You've got two weeks to make a decision. We'll do a management call on that.
It's quite a very binary decision and a quick one, but relatively easy for people to make. That is not typically the type of co-investing that we're doing. What we're undertaking is working alongside a manager who really needs us and or somebody else to be alongside them either pre or just after they've made that investment. It's really doing a lot of sort of underwriting alongside the manager. That's something that really matters to a GP. They need to be confident that we're there, we can move quickly. That type of relationship is something that takes a lot of effort and time. Our secondary activities cover a broad range, but probably the core of what we do is where we're acquiring an LP interest in mid-market funds.
These are typically in a situation where we are either an existing investor, primary investor with a strong relationship, or someone that we know very, very well, which clearly gives us an advantage against a pure play secondary buyer who doesn't have primary capital to deploy. There's definitely information symmetry there, and the GP would like us to have that because we're an existing investor, hopefully with more primary capital to deploy in the future. When we look at a lot of our activity over the past few years, we've been very successful in these concentrated secondaries or these continuation vehicles where a manager typically has an investment that would make sense holding for longer. Typically, a lot of secondary buyers are providing that capital.
In these situations where we're quite often an investor, a meaningful investor with a strong relationship with a GP, we can work alongside the GP to say, here's how you should be thinking about constructing this and working there. We clearly have a much greater advantage in that situation than a pure play secondary player. I'm just giving some examples of where those relationships really matter. To Marco's point, that's something you just can't go and do quickly unless you want to just simply throw a lot of money at it and have a bit of a dartboard. I hope that gives a.
Yeah, that was great. It would be interesting, if possible, to kind of walk through an example of, you know, you guys have been primary investors in a GP for a while. There was a co-investment or a secondary opportunity that came up, how it came up, just kind of walking through a story of a specific example of what you're talking about.
One example I'll give is actually probably more on the co-investment front and how a relationship can develop. We have, again, some very strong GP relationships that have gone back many, many years, which is hugely beneficial. We're always on the hunt for managers that will bring something else to our portfolio, typically along sectoral plays. Just going off at a slight tangent, Charles, I mentioned before about how there's really been this, people are now doing things from a sectoral position. For us, for a number of years, we have been probably quite heavy from portfolio construction on healthcare, healthcare services, technology services. We actually get quite a lot of services. What we're thinking now is, how do we construct that? Is there either a gap in what we're doing or is somebody else bringing some particular angle to something that we haven't had before?
We came across a manager, a new manager in COVID. Bizarrely, this is the only time we've ever invested in a fund or investment where none of us had ever met the GP physically. It was a team that had got together. They'd done a few deals. They had come out of some well-known European GPs that we knew very, very well. We could really triangulate, again, what they're doing, their story. Part of what's quite often the case with managers who are just getting into business, they will have made a few investments themselves or when they're raising a fund, they need more firepower to make those initial investments, which we view as something that's relatively easy for us to do because we've done it for such a long period of time. It gives us a phenomenal angle when it comes to diligencing the manager.
Nothing works better than actually working alongside them in a live transaction. We were very close with them in making and investing in their fund, effectively cornerstoning it to some extent by getting a lead role in an investment they were working on. We were able to do full diligence alongside them. That's hugely valuable to them, both in terms of the capital, by having us as a reference name in that. It enabled them to attract more clients to it. That relationship worked very well. The co-investment itself did exceptionally well. Their first fund has really done exceedingly well when one of their assets looked to be appropriate for a continuation vehicle. For them, there was a huge amount of additional growth opportunity in this company.
There were a number of investors who came into the fund who were, again, how do you provide the option for them to exit and those who wanted to stay in? Who else would they turn to but us to talk through how they would work through that process? We were able to take a lead position in that continuation fund or a secondary. I hope that's a really small snapshot of how we work very closely alongside existing managers. I think another example of the relationship side of things is an area we're looking actively at. I've made our first investment in GP stakes. It's been a very expanding market.
I think where a huge number of investors are now seeing the opportunity to invest in a GP to give them capital for new activities, for taking a stake in the funds and GP, the GP commit and the GP itself. It's another really good example that when we've spoken to a lot of our key relationships over time, they would have a preference for having us come in as investors, someone they have known and trusted for a long period of time, rather than necessarily almost a pure play financial investor who, again, they don't know. We made our first investment for our clients in that early this year. That's a strategy that we're looking at. That's something we should do on a standalone basis to benefit from that angle. A very good example of that. It's a relationship business.
Makes a lot of sense. Shifting gears here, because we're already through half the hour, how should we think about the building blocks of growth over the next, you know, two or three years? I think Andre, in his introduction, mentioned that at the Capital Markets Day, you know, stated that the target was to roughly double fee-earning AUM in the business over the next three years. Just, you know, what are the building blocks for that?
The first thing I'd say is that the number one priority for me is to continue delivering the very strong performance with different clients today. That matters hugely to them. That's a key priority. Fundraising, I think, is a key area for us. We need to continue to maintain and grow our SMA client base. A number of our mandates are either actually evergreen by nature of the vehicle itself, or it's effectively evergreen because the client effectively puts things into different tranches. We've got such a strong track record in delivering a broad range of activities for different SMA clients. It's an area where we're looking to now because we're able to grow. As I said before, these relationships take time. We've got lots of irons in the fire there. Definitely looking to grow our successful secondaries strategy, the SOF strategy.
That's something where we could absolutely deploy significantly more capital in effectively the same transactions, leaving money on the table. That's one point I probably would say, Charles, that within our, I'd say, our existing investment capabilities with what we do, we can take on, it's a generalization, but I think significantly more capital without increasing the operational, you know, I think we've got very strong operational leverage in that area. That's beneficial to us. Developing more pooled products. As I said, we've only really got one at the moment, but there are other areas where, again, we have a particularly strong track record in an area that for something that should be resonating with clients, developing new channels and products, things like semi-liquid with partners, the CFO market and insurance channels, very interesting. I think the other area on fundraising is really developing the LATAM opportunity.
If you go right back to one of the reasons that I think Patria really saw the Global Private Markets Solutions opportunities for LATAM investors who really clearly benefit from Patria is a, maybe not a household name, but financially is very, very strong in that region. LATAM is significantly underpenetrated in terms of its allocations to private markets, to private equity than other developed markets. A really strong opportunity for us to be, I think, at the forefront of that in fundraising. On the investing front, again, we make, you know, we are at the moment, we've got a very, very large and strong European presence. We've got a much smaller one in the U.S. It's headed by my colleague Eric Albertson, who's been with the business for a long period of time, has a phenomenal track record.
We recognize that we have a clear imbalance in terms of the offering to people. The U.S. is clearly massively important. We're looking very carefully right from the start about how do we enhance that around bringing people into it. We've already brought new team members in there. Do we acquire? Do we make an acquisition of a business that sits alongside and has a similar investment philosophy with what we can offer to clients? I think the other area is developing some adjacencies to what we do. I mentioned GP stakes there before using CFO technology to provide a different offering to others. There are many things that we can go for. We're certainly not short of opportunities. I think it's where do we place our bets?
If I can add one point there really quick, like on our Investor Day, there was a page, I think it was page 99, that shows a little bit how, as Merrick was saying, how the strong returns also drive asset growth, right? We give an example of this SMA, this account that started with about $200 million in 2015. If we fast forward to today, it has like about $1 billion, almost $1 billion with us. This investment returns, the strong performance that Merrick mentioned, that also contributes to asset growth.
Makes sense. Yeah. It strikes me that one of the unique features of the business, and maybe this is too simplistic, is because the SMAs are basically evergreen structures. You know, you're growing your assets just through investment performance, whereas a normal private equity business where it's all pooled structures, you invest, it grows, you return the capital, and then you have to raise a bigger vehicle. If we think about the building blocks, you kind of have existing SMAs that are growing over time, and that grows your assets. You then layer on new SMAs, and then you have your pooled vehicles, which deploy, grow, get distributed back to LPs, and then you raise new pooled vehicles, hopefully more of them in a bigger size. That's kind of how the three chunks of the building blocks for grow. Does that make sense or is that?
I wish that were exactly the case, Charles. I think, but when we look at those SMA activities, there are certain ones which are actually evergreen vehicles. If you think about our largest client, it is the Patria Private Equity Trust, you know, 23 years, about $1.6 billion of that. By definition, that's a closed-end vehicle, and the only leakage, if you like, in that is the dividends that you're paying. That is almost full recycling. You get that. We've got some other mandates that are actually set up as evergreen vehicles. The second bucket, which I think you were describing, I wish all of SMAs were like this. This is where they're thinking for the long term and want to do it, but need to be doing it in tranches, and it's easy for them to do it.
Quite a lot of SMAs, unfortunately, are where people are wanting something at a particular time. I don't think we've ever, certainly in my experience, we've never lost an SMA through performance, but people's positions change. We had one of our SMAs for the pension plan of a U.K. financial institution. It's not investing in private equity anymore. It was a pure co-investment mandate. We had two tranches of that. Again, that's their choice. Things can change. That's the beauty of the SMA market. The client can change anything at any point in time. Broadly speaking, I think that's what we're looking to get the balance right between our SMA activities and getting that, if you like, growth through the effective recycling. I think the other area we really want to focus on too is the pooled products. When we look at our competitors, pooled products are good, and it's a specific offering for potential investors who don't have the scale to be able to do an SMA. Definitely looking to extend that into new areas.
Maybe looking at growth from a different lens, if you know we were talking 10 years from now and things had been incredibly successful with the GPMS business, what would success look like in 10 years? What would the business look like? What would you be doing? Where would you be doing it? The different geographies, different products, paint a picture for what that would look like.
One thing I'd say is that, you know, everything we've discussed to date within the Global Private Markets Solutions has been private equity related and actually buyout within private equity related. It's certainly the longer-term expectation that that develops into a much broader range of private market solutions. I think in times, what are the areas that we would like to devote more? Certainly on the private equity side, having more venture capabilities. That's something, again, we do a little bit of, but I think effectively acquiring the resource and track record to do that is an area we're looking at. I'll come back to the U.S. in a minute. Outside, another area, certainly infrastructure, private credit, real estate areas, and this is effectively all as solutions providers and all ex-LATAM are all areas that Patria is definitely looking to build.
I think coming back to what would success look like, excluding the private equity part of the business, which I manage, it'd be disappointing if we hadn't made some real inroads into developing other private market solutions in probably in other developed markets. Coming back to the private equity business, I mentioned before there, we really, you know, having a, I'd love to have a team that is at least equal to the size or greater in the U.S. from what we're doing. Particularly, you know, the U.S., there's a reason that the U.S. is the biggest private equity market in the world. There's a reason that most investors have a home market bias within private equity. The next area they looked to maybe up until recently was the U.S. Clearly, we have to have a really strong offering in that area.
Fundraising, I think the success is we really see the benefit in the future of the LATAM market. LATAM, showing my ignorance coming into it, is a very heterogeneous market. The dynamics in Chile, for instance, are fundamentally different to Brazil. There are certain reasons as to how they think about and why they're looking at global private markets or private equity at the moment. It would be a shame if we hadn't really demonstrated the strong position that Patria has in the region to be gaining market share offshore. I think those, I'd say, would be the, you know, I think, look, I'm blessed with an incredible team of people who are very strong, entrepreneurial. We've got great track records in certain areas and really think laterally about other things we can do. I mentioned some of the things that we're thinking about at the moment. We've got no shortage of opportunities. I'd love to see some really develop from a standing start into a genuinely new and very scalable product line for us.
Makes a lot of sense. How should we think about the timeline for LATAM investors to be a material part of, you know, material LPs in the Global Private Markets Solutions business? What ending of that process kind of are we in today?
Honestly, it's really difficult to say. If you look at something like the Chilean market, which is really quite sophisticated with how it views private equity globally, we have an incredibly strong position in that market, particularly through the Moneda acquisition. There, it's something which is actually providing probably a more bespoke, tailored product for what we're doing. You're going in there, we have an incredibly good set of relationships, but our competitors have already been in the market. I go back to what I said before. Yes, we've got a very strong position there, but it takes time to develop those. I think once you start getting credibility by maybe you take on one SMA client in a particular area, that answers, so things can grow from that. That's something I'd hate to put a timeline on because it's very difficult to predict.
If we look at somewhere like Brazil, I think the dynamics are very different. There's very high interest rates there, and actually the issues have been about actually investing in private equity anywhere, given what the returns are. I think you'd need to see a change in that environment before we'd see sort of material success. I'd love to be able to give an answer, tell everyone that the whole business is working very, very hard on that. We see tremendous opportunities, but it's really, really difficult to say.
Got it. When I speak with other investors who are early in studying Patria, getting up to speed, a question I often get is, why is Patria the right home for the private market solutions business? We obviously touched on the LATAM opportunity. In the beginning of today's call, when we were talking about the carve-out process, you talked about how Patria is a very entrepreneurial place, how one of the things you were looking at when searching for a home was a place that would allow you to invest. I guess talk to us about how it's been like working with Patria, what you've been able to do and invest in today that you weren't doing under the umbrella of Aberdeen. Give us some flavor for that.
Without naming names, it was interesting. When we were going through that process, there was a very large European financial institution that was looking at us and were very keen and were going to put a lot of things in place to address the challenges of that financial institution's opening. What was really interesting about that is that it's a large financial institution and it had to go through processes to bring people on board. It was a very laborious process and I'm not being critical of them at all. I completely get it. This is a new area for them. Patria, though, and again, this was really led by Marco , was able to come in and was able to react to things very, very quickly, deliver on that. The lines of communication internally were very, very short.
We'd be saying we need this, that, and the other to access. Obviously, we were questioned about it, but decisions were made quickly and assurances given. You were dealing with a business that was and is highly entrepreneurial and is able to move very, very quickly. Some of the things that were important to us, we had challenges around pay structure. We had challenges, we'd had effectively a hiring freeze on numerous positions that we needed to fill. I honestly can't, I don't know what the count is, but it would be 20 + people, I think, that have been brought into the broader business since the acquisition, even before the acquisition, effectively just let's get these things done. I mentioned earlier around systems, we were behind where our competitors needed to be on really having a world-class system.
That's something Patria, again, got immediately and we've been working very hard on investing in it. There's just no shortage of examples of where that's been given. I think on the other piece around this entrepreneurial is when we think about, when Patria thinks about how we develop in these other areas, there's no fixed view about, oh, we've got to make an acquisition that looks like this or do so. There are so many different ways of skinning the cat through that. That just gives you far more optionality in how you go. I think, yeah, definitely the LATAM opportunity because you immediately get it. Here's an area that overall is so underpenetrated for private markets globally, and Patria has a leading position there. I think Patria has a bigger market share within LATAM than Blackstone has in the U.S. That is very powerful. That was definitely one element. The other was the entrepreneurial and partnership nature of the business. That's been borne out.
Wonderful. I think we have just a couple of minutes left. I have a few more, but Andre, maybe I'll turn it over to you and see if there are any questions from the audience before I take up all the time here.
Yeah, okay. You're getting to the top of the hour. Let's try to squeeze at least one question here for the audience. I'll read it exactly as it came. It says, my understanding is that performance fees for the prior funds did not transfer with the acquisition. How should we, as Patria shareholders, think about performance fees or PRE for GPMS over the long term? Merrick, even before we start that, if I can just give a quick note. Patria's net performance fees for the second quarter total about $400 million or $2.47 per share, with about $50 million coming from our Infrastructure Fund III, which is in full realization mode. This balance, as the question says, does not include any performance fees accrued for GPMS as the prior funds were not transferred with the acquisition. I'll give you the time to talk a little bit about performance fees going forward.
Thanks. That's absolutely true. I'd say that a negative and a positive, I think, on the GPMS when it comes to performance fees. The negative is that, firstly, from the indirect business, for those mandates, funds that have performance fees, they are lower level than pure play private equity or private markets. Even if our model was a sort of a one in 10, I think there's no mandate that we charge more than a 10% performance fee or carry on that. It's lower. Also, our mandates differ hugely. We have a number of mandates. For instance, the Patria Private Equity Trust has no performance fees at all. What I would say is that the proportion of the most overall revenue that would be ever attributable to the performance fees within GPMS is lower than what you would typically see in a direct business.
The positive, though, is that I mentioned before, we have such a variety of mandates that do have performance fees that when you get into, you know, when you get into the period where, as you say, nothing was done, but there will be, I feel like, multiple shots on goal here because you're not reliant on just simply the next fund in the series, which may or may not do well. I think there is inherent longer-term diversification benefit of that, albeit the quantum of performance fees would inherently be lower. Does that explain? Answer the question.
Yeah, I think that makes sense. Maybe I'll squeeze one last one in here. How do you think about growing the sales and distribution side of the business? Specifically in relation to that, what has changed since the business has changed ownership?
Firstly, I feel like on the LATAM side, Charles, there's, you know, Patria has a very large distribution team.
Yeah, obviously LATAM didn't exist before. Yeah.
Correct. Ex-LATAM, firstly, there's investment in people. What I would say is that there isn't naturally a massive intersection between Patria's sort of global investors in LATAM with what the private markets investors are because, again, it's a different offering. This is providing an opportunity for far more conversations and new markets. There's investment in people there that's happened and is continuing. The other element comes back to being very pragmatic. How we use external companies, placement agents in particular regions or particular strategies to supplement that as we grow. It's really a combination of using external parties and increasing internally. The other thing I'd say, Charles, is the nature of our business is we're very client-centric. A significant part of the senior people's time is around maintaining our existing relationships and developing new ones. We've got a very, very front-facing role in that because of that relationship nature, particularly on the SMA front.
Great. Andre, are there any more questions from the audience?
Actually, there are a couple, but I think we're coming to the top of the hour. I'll free you guys and I'll just reply to those through email. Thank you very much, Charles. Thank you very much, Merrick, for the conversation. Very valuable. Again, if you submitted your questions, we'll get back to you guys through email if we haven't answered you here.
Thanks a lot, Charles.
Thank you.
Bye-bye.