Good day, thank you for standing by. Welcome to the Patria first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Josh Wood, Head of Shareholder Relations. Please go ahead.
Thank you. Good morning, everyone, welcome to Patria's first-quarter 2023 earnings call. Joining today are our Chief Executive Officer, Alex Saigh, our Chief Financial Officer, Ana Russo, and our Chief Corporate Development Officer, Marco D'Ippolito. This morning, we issued a press release and earnings presentation detailing our results for the first quarter 2023, which you can find posted on our investor relations website at ir.patria.com or on Form 6-K filed with the Securities and Exchange Commission. Any forward-looking statements made on this call 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 inherent risks, including those discussed in the Risk Factors section of our 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. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards, or IFRS, as opposed to U.S. GAAP. Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable IFRS measures are included in our earnings presentation. Patria generated distributable earnings of $39.1 million or $0.27 per share for 1Q 2023. We declared a quarterly dividend of $0.226 per share payable on June eighth to shareholders of record as of May seventeenth. With that, I'll now turn the call over to Alex.
Thank you, Josh. Good morning to everyone. Patria delivered solid results in the first quarter of 2023, delivering $0.27 of distributable earnings per share as we make progress in some key areas and march towards our targets for the year. Post-tax distributable earnings were $39 million in the quarter, which included $31 million of fee-related earnings and also $10 million of performance-related earnings. Fundraising in Q1 totaled $390 million, anchored by strong momentum in our Brazil-focused products, including contributions from the Brazil feeder for our latest vintage flagship private equity fund, our Credit 365 Fund, which brings private investments opportunities to individual Brazilian investors, and REITs managed by VBI, our real estate platform in Brazil. Importantly, we are making good progress towards significantly larger fundraising results in the next few quarters.
Already in Q2, we have secured approximately $370 million of additional inflows, including a follow-on in our core infrastructure fund and additional inflows from VBI, bringing our year-to-date fundraising through April to more than $750 million. That is capital primarily raised outside of our flagship funds, which we expect to contribute more significantly by the close of Q2, including the first closing for our next flagship infrastructure fund. On the people front, we also just announced Marcelo Fedak to serve as our Head of Real Estate, further strengthening the leadership structure across our asset class verticals. Overall, we're happy with the performance in the quarter and continue to feel good about our fundraising target of $5 billion-$6 billion and fee-related earnings guidance of $150 million for the full year 2023.
How is it that we are able to maintain confidence in our trajectory in spite of volatile market conditions? It's because of the resilience of our business model. We aren't dependent on deposit-based funding. Much of the capital base is locked up for multiple years, and even products that offer more frequent liquidity have shown considerable stickiness because of their solid track record. We also run a light balance sheet, meaning we don't require significant capital at the firm level to deliver our earnings stream for shareholders, and likewise, don't have significant mark-to-market exposure that impacts our balance sheet assets. While we of course aren't immune to the microenvironment, we believe we have a model that allows us to deliver consistent and growing fee-related earnings with the upside from performance fees as we deliver returns to our clients over the cycle.
On the macro front, our business continued to thrive despite fresh challenges in Western Europe, brought by the high-profile bank failures and rescues. One of Patria's investment tenants is the low correlation between Latin America and other geographies. Investors in the region have indeed began to price in near-term interest rate cuts in major Latin American economies because of the sharp reduction in consumer inflation, a consequence of preemptive monetary policies implemented by diligent central banks. In that context, Chile seems to be the best candidate to start the cycle of monetary easing. Consumer inflation peaked in 2022, the government budget has already turned into surplus, and the country is posting significant progress in the institutional area. In Brazil, consumer inflation peaked in April 2022, and there are now convincing signs of fiscal consolidation by the new administration.
Despite sometimes clumsy rhetoric, the executive and legislative branches have agreed on the basics of new fiscal framework to secure a break-even next year and primary surplus afterwards. There is political consensus to pass a comprehensive tax reform, which would be gradually enacted from 2024 onwards. Constructive domestic developments in major Latin American economies are taking place amid favorable terms of trade and robust foreign direct investment flows. Latin America is increasingly perceived as being in a sweet geopolitical spot and an attractive destination for near or friendly shoring CapEx. This outlook has led to currency appreciation against the U.S. dollar year- to- date, thus proving further evidence of the region's low correlation with the rest of the world. Now turning to some details across our platform.
In private equity, we generated $10 million of performance-related earnings in Q1 through an agreement with fund investors to crystallize a portion of the performance fees related to Lavoro, a leading Latin American agricultural inputs retailer, which completed an IPO at Nasdaq in Q1. This crystallization was made possible outside of our standard waterfall structure, which Ana will cover in more detail. The focus on divestment for Fund V continues, and we do expect to make meaningful progress this year. In Q1, we sold an initial small tranche of our investment in Smart Fit, the leading fitness market company in Latin America by membership, and we are in advanced stages of the exit process for multiple additional portfolio companies.
While the fundraising environment for private equity remains challenging, we are advancing on our next closing for the next fund vintage, and we believe divestment and return on capital in the older vintage funds will be a strong catalyst for that fundraising process. Operating metrics at underlying portfolio companies continue to look good with EBITDA growing at approximately 15% year-over-year based on available data for the quarter. We did reflect a downward impact on our net accrued performance fees in Fund V in Q1, mainly driven by the volatility in the share price of Lavoro immediately following its IPO, which is not uncommon in a de-SPACing process. We continue to feel great about the company, which recently reported impressive results for the most recent semester with Adjusted EBITDA up 88% compared to the prior year.
We expect to see the valuation improve considerably based on fundamentals and similar industry comps. We feel great about the full portfolio and the value we can deliver to shareholders over the next few years. In infrastructure, we are approaching our first closing of the next generation flagship fund, which we expect to commence here in Q2. Strong realizations from Infrastructure Fund III in 2022 were led by the sale of Odata, our data center platform, and partial exit of Entrevias, one of our toll roads in Brazil. These and prior divestments account for more than $2 billion in proceeds to limited partners and with a 13% net IRR in U.S. dollars.
We are now in the performance fee realization phase of the fund with a high-performing portfolio still remaining. These are likewise great supporting factors for fundraising and should allow us to deliver a sizable first close on the new flagship fund. Just after the end of the quarter, we also announced a follow-on offer for our non-listed infrastructure core vehicle, which we call Pier. The offering closed in the first week of April, making a Q2 fundraising result. It attracted BRL 215 million of new permanent capital AUM, and was even larger than the initial offering that we completed last year. It is a great example of how we are expanding our product menu in this asset class to reach new client channels and facilitate the expansion of alternatives allocations for local investors in the region.
Our credit strategies continue to perform well with both Pan Latam and local Chilean strategies delivering a strong result in the quarter. The largest fund, Latam High Yield Corporate Credit, outperformed its benchmark by 180 basis points in the first quarter and 130 basis points over the past year, which was a very challenging period for the asset class. We also expect to complete the first closing of our infrastructure credit fund in Q2, which already has anchor commitments in place from three multilateral agencies, as we have noted. Leveraging our long-tenured experience in Latam infrastructure development as well as transaction diligence through existing pipelines, this product will provide a new angle for Patria to serve clients across the capital stack in infrastructure.
In public equities, our Chilean equity strategies again were a highlight, with the main fund, Pioneiro, outperforming by 180 basis points in Q1. For Latam equities more generally, we see an attractive setup looking forward in the second half of 2023 and 2024. Valuations remain at their lowest point since 2008, with a broad Latam index trading at approximately 7x earnings. We are also seeing a historically large gap between local interest rates and falling inflation. This backdrop is generating some early traction in our investor base, and we think this is constructive for both performance and flows in the coming quarters. In real estate, we further strengthen our leadership team with Marcelo Fedak joining Patria as a new partner to serve as our head of real estate across the region.
Marcelo has built a successful 14-plus year track record, managing over $4 billion of real estate-focused AUM for large financial institutions. We are very excited for his arrival at Patria to lead our growth in this asset class. VBI, our platform in Brazil, is performing very well and continues to grow with nearly $50 million of inflows in Q1, mostly into an office-focused REIT. Just in early April, therefore yet to reflect in our metrics, VBI has secured nearly $250 million of additional inflows by gaining market share with Brazilian institutional investors and consolidating management of smaller or single-asset REITs. Marcelo will partner with VBI's superb leadership team to continue our momentum in Brazil and also look broadly to how we can replicate that model in other regional markets.
Advisory and distribution is an area we don't typically highlight as often, but has quietly been growing nicely with AUM up 13% over the last year on $156 million of inflows in Q1. Here we are currently doing a few things. Traditional wealth management services, fee the funds for global alternatives, and even direct fundraising through global partnerships. On the last point, for example, we raised more than $50 million in Q1 for direct third parties, which does not reflect in our AUM, but does earn incremental placement fee revenue. While this part of our business is still relatively small as an earnings driver, it represents the strategic ambition to be a trusted knowledge partner and conduit for LATAM investors to access alternatives more broadly across the globe.
That can take a number of different forms which we are exploring. We believe there is potential as a meaningful vector of growth in the coming years. Again, overall, I'm pleased with a solid quarter and we are on track for our 2023 targets of $5 billion-$6 billion of organic inflows and fee-related earnings of $150 million. We are making great progress behind the scenes, which we believe will drive results to be seen in the next few quarters.
Let me now turn things over to Ana to cover the numbers in a little more detail. Then Marco will add some comments on our corporate development efforts. Ana.
Thank you, Alex. Good morning. Patria's first quarter 2023 results were in line with our guidance of the last call regarding fee-related earnings, and we are able to generate performance-related earnings, which added some upside to distributor earnings and the dividend. Our fee-related earnings were $31.2 million in first quarter 2023, at similar levels to our first quarter 2022 of $31.9 million. This result is consistent with our comments that first quarter FRE was likely to be more in line with the 2022 run rate, with growth coming in the later quarters of the year. Total fee revenues were $57.1 million in Q1 2023, up 4% from $55 million in Q1 2022, with the positive impact of capital deployment in our drawdown funds and the addition of VBI.
This was partially offset by the impact of outflows in open-end credit and public equity funds and the contractual end of the fee terms of another vintage infrastructure fund. Total operating expenses for first quarter 2023 were up 12% from first quarter 2022, driven by expenses related to recent acquisitions and also increases in compensation and certain costs driven by inflation and the expansion of our platform. This resulted in a consistent FRE level and an FRE margin of 55% in the first quarter 2023. The margin is down from 58% in first quarter 2022, but is still in line with our guidance range. Achieving our overall FRE guidance for the year implies that the margin will likely rise slightly in later quarters. Performance-related earnings for first quarter 2023 were $10 million and were generated for private equity fund size.
These performance fees were crystallized in conjunction with the IPO of Lavoro. For this specific case, the limited partner of the fund and Patria agreed that as a consequence of successful completion of the transaction, part of performance fee was crystallized through Lavoro's shares to Patria. Given the opportunity, we are pleased to be able to deliver this value to shareholders here and in the first quarter. Note that we have adjusted our presentation of net accrued performance fees beginning in first quarter 2023 to reflect the balance growth of related corporate taxes, where it was shown net in all previous reporting. This change makes sense in order to fully align the performance-related earnings in our P&L with this operating metric, which represents the potential inventory for that line item and exclude an impact which will be reflected below in the corporate tax line item of the P&L.
The net accrued performance fee balance stands at $437 million as of March 31, 2023, down from $478 million at December 31, 2022, driven primarily by the quarter end share price of public holdings in Private Equity P5, as Alex noted. This continues to equate to approximately $3 per share of value that can accrue to our shareholders as this portfolio are divested. Distributor earnings of $39.1 million in first quarter 2023 is up from $35 million in the first quarter 2022, primarily driven by the benefit of performance-related earnings in the current quarter. Our DE per share of $0.27 will generate a dividend to shareholders of $0.226, which translates to roughly 6% yield on annualized base at recent share price level.
Total AUM was $27.3 billion at the end of Q1, roughly flat for both the quarter and trailing years, with inflows from fundraising and acquisitions offset by the impact of the market environment on portfolio company's valuation, as well as the outflow pressure we have seen in some of our open-end products. Fee Earning AUM of $19.9 billion is up 4% for the quarter and up 5% from one year ago, consistent with our increase in fee revenues. Remember that for Fee Earning AUM, valuation impact is more muted and limited to funds that charge management fee on NAV as opposed to cost base. In fact, valuation was actually a positive driver in the first quarter 2023 and prior year breach. This reinforces the relative stability of our management fee stream when public markets are volatile.
As Alex noted, we are still on track for our 2023 Fee-Related Earnings guidance of $150 million at a margin in the upper 50% range. We believe this growth will be concentrated in the back half of the year. I will now turn the call to Marco for a few words.
Thank you, Ana, and hello, everyone. With my new role focusing time more fully on Patria's corporate development efforts, I can reiterate that we remain highly focused and active on this vector of growth. Our goals through M&A are clear: expanding our product offering, extending our geographic expertise, and enhancing our distribution channels and capabilities. Each of the four acquisitions was closed in our first two years since IPO, achieved one or more of those aims. Moneda brought credit and public equities verticals, as well as extensive expertise and client relationships in Chile. Kamaroopin and IGA both brought talent and track record to expand our private equity vertical into growth, equity, and venture capital. VBI brought us expertise in real estate along with a significant platform of permanent capital AUM. Looking forward, we've conveyed our interest in three key priorities.
One, geographic expansion into Mexico, where we see significant opportunities stemming from nearshoring trends in coming years. Two, continued expansion of our real estate business both in and beyond Brazil, which we believe is a still subscale relative to its potential in the region. Three, expanding our abilities to serve as a conduit in the region for investing in global alternatives. We're actively exploring opportunities in these areas, and we'll continue to keep you posted on our progress. Let me now turn it back to Alex to close.
Thanks, Marco and Ana. This earnings call marks the first step in a new calendar year, and Patria starts 2023 with clear ambitions for growth as we continue our journey as the gateway for alternative investments in Latin America. We continue to operate in a challenging environment, and we must continue to deliver consistent, attractive returns and second-to-none service to our clients as we scale and expand the investment platform. We have assembled a world-class team across asset classes and functional areas to meet those demands, and I believe we are very well positioned to succeed. We shared our goals over the next few years with you at our Investors Day late last year, so the stage is set. Now it's our job to execute, and assuming we do, I believe there is no question that Patria looks very attractive at today's valuation.
I'm proud and privileged to lead this group and to serve our clients and our shareholders. We're now happy to take your questions. Thank you.
As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tito Labarta from Goldman Sachs. Your line is now open.
Hi. Good morning, Alex, Marco, and Ana. Josh, thank you for the call. I'll take my question. I guess my question, just to follow up a little bit more on the FRE outlook for the year. I know you said you're on track and, you know, margins can improve a bit from here. Just to think about how that will evolve, right? 'Cause, I mean, with the $31 million, you probably have to get maybe about $40 million in the second half of the year to deliver that $150 million target. To get... Would that just be this increase Fee Earning AUM? Like, should fee revenues be the driver there? Or do you see improvements here on the margins, right at margins at the low end of the guidance?
If you could just help us think about sort of the, those dynamics from here on out to be able to reach that $150 million. A second question just on the performance related earnings, you know, good co-performance in the quarter. Is there room to realize more performance fees this year given the realization of the model? Any color you can give on the outlook for the performance fees?
This is. Hi, Tito. This is Alex. Thanks for your questions. Going back to the first question here. Yes, it's exactly as you said, we see both increases during the year, as we did raise first close of our flagship Private Equity Fund late last year. We're now investing that fund and, you know, we charge fees on invested and not on committed on that fund. Also for our flagship Infrastructure Fund, as we mentioned, we target to have a first close in this quarter, in second quarter of 2023. We, you know, start investing that fund, and we also charge on invested capital there.
These two are, you know, big flagship funds, Private Equity Fund VII that I just mentioned, and the first close of Infrastructure Fund V coming in the second quarter. It gives us a lot of dry powder for committed capital, but not in-invested. As we invest along the year, that should drive revenues up. Those revenues come with basically no cost, right? because we already have the teams in place to manage and invest the two funds that I just mentioned. In addition, our Brazil-driven strategies, as I try to send a message over the call here. They're doing extremely well. They're managing to raise and overperform in Latin America, as previously also stated in other calls, earnings calls like this one.
We are also overperforming in the Middle East. We're overperforming in Asia, compensating a little bit still the underperformance in the U.S. on the fundraising side. In general, when we add up all the numbers, we still feel comfortable that we will do and reach the $5 billion-$6 billion of organic fundraising for 2023 and the $150 million of fee-related earnings for 2023.
In addition, we also see the business scaling a little bit, as you also mentioned, Tito, because revenue is going up, expenses more or less under control, so the margins should notch up a little bit as we move through 2023, reaching then the numbers that you just mentioned on a quarter-by-quarter basis to the whole summing up of $150 million of FRE by the end of the year in total for 2023. On the performance fee side, yes, I think we getting now more and more comfortable on that side, I think because of the big divestments that we had for our Infrastructure Fund III during the year of 2022.
As we conveyed, and you followed very closely, we did send back two investors for over, you know, $1.4 billion just throughout last year for that specific fund, totaling $2 billion in total with previous divestments for that Infrastructure Fund III. That actually generated a small amount of carry for 2022 of approximately $19 million or $18.9 million, but whatever, $19 million for 2022, and did put us in the catch up or bracket there. Everything that we sell from that fund, 100% will come as performance fees.
Raising the possibility of us having performance fees from Infrastructure Fund III this year and the performance fees that we had in the first quarter of 2023 came from Private Equity Fund V investments, Lavoro, our agricultural input distribution company, not from the Infrastructure Fund III that I just mentioned. I'm happy there on the performance fee side. I think we can do well on that side. Overall, on a three-year basis, as mentioned in our Facts Day late last year of $180 million for the general partner, I think we're in targets. Of course, performance fees, as you know, they can slip a quarter here, a quarter there, a year here, a year there, but, you know, I'm comfortable and getting more comfortable there with that number.
Why is that? The last point here, just on this catch up of phase bracket of Infrastructure Fund III, there's another $100 million performance fees. We already generated 19 last year. With this 10, that's 29. With this another 100, 139, we say that we, you know, we guided 180 for the whole three years, 2023, 2024, 2025. It gets me to be in a comfort level here on that front. That's why, you know, I come back and say, look, I, you know, looking into 2023, I'm comfortable with the $150 million FRE. Also, I think, you know, to generate more as we move into the year.
I hope I answered your questions.
Yeah, that was pretty clear, Alex. Thank you very much.
Thank you. All right, 1 moment please for the next question. Our next question comes from the line of Craig Siegenthaler of Bank of America. Your line is now open.
Good morning, Alex, Marco. Hope you're both doing well, good to hear that you're still on track with your targets against a tough backdrop. With the U.S. alt managers, in this more difficult backdrop, many of the first closes have come in fine, you know, maybe 50% of the target in a pretty short period of time. You know, this can include raises from long-term clients, so it might be viewed a little easier. The second through final closes have been a lot tougher, both in terms of time, and size. How should I think about this sort of risk when I'm modeling both Private Equity 7 and Infra 5?
Hi, Craig. Nice talking to you as well. Hope all is well with you and your family. No, you're right on the dot there. I think, you know, the way that we are seeing our flagship fund fundraising is exactly as you said, we have a big first close. Big, I mean, 40%, 50% of the targets of the fund. Comes in the second, third close. I think contrary to prior fundraisings, the second, third close come in in smaller amounts and more scattered than one chunky second close that was kind of more of the norm going back whatever, several vintages ago. We're seeing that on our Private Equity Fund VII.
We had a big chunky first close, and then we had several other smaller ones, and we're closing on that fund every two weeks, every three weeks. As we know, you know, group a bunch of investors together, we have another close. In addition to that, Craig, what I can say also from Private Equity Fund VII, as I mentioned, as we are also raising money from other locations of the world, we're, you know, overperforming LATAM, Middle East, including Israel, Asia, and underperforming U.S. We also having specific vehicles for those regions. We have a, you know, a group of Brazilian investors coming in through the Brazilian feeder, and a group of then Colombian investors coming from a Colombian feeder and et cetera.
That's why it's also a little bit more patchy, you know, having these smaller closes. In the end, I feel comfortable, from what I see now in my pipeline, that we'll continue to fundraise significantly for Private Equity Fund VII. That then comes Infrastructure Fund III now. Infrastructure Fund III, the first close, I think, is even stronger than I was expected. I think also it has to do a lot with the divestments that I just mentioned. Sorry, Infrastructure Fund V, it has a lot to do with the divestments that I just mentioned for Infrastructure Fund III. That big DPI number, of course, also drives fundraising.
You will probably see in the first quarter, in the second quarter, I'm sorry, of this year, a chunky first close, and then over the year, you're gonna see other closings for there. I think we'll reach the number as well. I feel very comfortable with both. On lastly, on the private equity side, we do see a lot of divestments coming, and we are signing several exits for our previous vintages funds. That helps, of course, the DPI number of those funds go up and does drive also a better fundraising in the near future. Yes, you're right. It's a little different than it was, I think, previous vintages ago.
What I can say is, I think, you know, looking back to our strategy of this capillarity in fundraising, have offices all over the world and fundraising from several regions of the world, we're managing then to compensate a region like the U.S. that is still underperforming with overperforming in other regions. Of course, I have to overperform in two or three other regions to compensate the U.S. because the U.S. is a big region. As I said, Asia, Middle East, including Israel and LATAM in general, LATAM, I'm very well surprised, to be honest.
I think we're fundraising two to 3x more than I expected, even Israel, 2x to 3x more than I expected, even though the numbers from Israel are smaller than the whole LATAM, it's 2x to 3x more than what I expected. In the Middle East, I think everybody agrees, you know, everybody is fundraising there a lot more than they expected, right? Because of the net inflows into that region and the sovereign funds and the pension funds of that region. Asia as well, interesting, lastly, again, I said lastly twice, I'm sorry, but lastly, really the lastly here comes with this phrase.
The geopolitical tensions of the world are definitely pushing companies to look into LATAM from Asia, from the Middle East, with different and better eyes on the strategic front and the investment front. Talking to a lot of our Asian clients and prospects that will buy our portfolio companies say, "Look, when an Asian company, a Chinese based company is thinking about expanding out of China, where should they go first, given, you know, the geopolitical risks? Should I go into the U.S.? Well, there's all these concerns. Should I go into Europe? Kind of same concerns on the geopolitical front.
Well, I can continue to expand to, you know, Asia, Southeast Asia, India, then comes Latin America, which is a very, very much interesting market. We're seeing this very positive foreign direct investments into the region. You know, a lot of, you know, Chinese investments in the region, and that is benefiting us from an LP, limited partners point of view, and also from a, you know, selling companies, a strategic interest for our portfolio company's point of view. That's why we are also outperforming in Asia. Middle East net inflows. Asia in addition, it has this geopolitical issue that is favoring other parts of the world vis-a-vis the U.S., vis-a-vis Europe.
It's clear that, you know, we had several Chinese delegations in Brazil, you know, doing diligence in our funds, doing diligence in some of our portfolio companies, which is, you know, kind of different than several years ago. The volume increased tremendously. Hope I answered your question as well.
Thank you, Alex. I just had one follow-up on Moneda. What new products has Moneda launched since the acquisition? Said a different way, what existing funds, you know, that they had before the merger, are now sold to a new client segment? I'm just looking for an update on the specific synergies of where Moneda is leveraging Patria and Patria's client distribution network.
Yes, thanks for your answer. On the credit side, I mentioned, I think during the call, I should have said it more clearly, I'm sorry, that we are doing a good job fundraising for a product called Credit 365. 365 means that this fund has, you know, a one-year liquidity gate. That's why the 365 attached to the name. That was, you know, a Moneda product, designed product by Moneda's credit team to Brazilian investors. Last year, I think we had a lot of the Moneda team understanding the Brazilian market, you know, trying to tailor-made their credit expertise in this example that I'm using to the Brazilian client needs.
We identified several of our client needs in Brazil, mid last year. We started working with these clients, and we already launched one product under this new synergetic team that I just mentioned. That's, I think that's one of the, you know, main reasons that we did associate ourselves with Moneda to use their credit intelligence. I'll talk about public equities in a minute, but use their credit intelligence to develop products for the Brazilian clients and we see that as a great potential. Of course, as you know, in Brazil, given the high interest rates, credit is a sought after product, right?
I think that's why the credit product is also doing very well, but of course you have the whole Moneda intelligence behind it. Second, as we raise our private credit fund number two in Brazil as well, we already had private credit fund number one in Patria. The, you know, the Moneda credit team did help us a lot in actually expand the addressable market of that product and, therefore expand the potential size of our private credit fund number two. We are identifying a lot of needs from our Brazilian clients also on the public equity side and we are doing the same.
We haven't launched any project yet, using the public equities intelligence of Moneda, but definitely so it's on, it's on the oven there. We are baking new solutions for our clients. On the other side of the equation, we are of course, raising money with Chilean institutional investors. What we did, first, Craig, is to focus on our Private Equity Fund VII and now Infrastructure Fund V, which is our already two products. I said, "Look, let's focus on these two products and use the Moneda distribution channel to raise money for our two flagship funds before actually introducing other products through that channel." Because of the size and the importance of the flagship funds, and because there are already two products, and we did the same in Colombia.
Moneda has an interesting distribution capability in Colombia. We're doing the same, focusing first on the two Patria's flagship products. We have not designed any products yet to the Chilean institutions, the Colombian institutions. The main reason there is because we wanted, again, to focus the fundraising on the two flagship funds. We are cooking here several new ideas and we had the whole management team of Patria in Colombia last week. We do our quarterly management committees in different offices. Last week was Bogota. We spent a whole week there's so many, you know, exciting things going on. We're talking to distributors on the real estate investment trust front, on the infrastructure investment trust front. Very interesting.
Given the high interest rates in Colombia, the credit related products. We're waiting to finalize the fundraising for the two flagship funds in order to start introducing a new level of products to the Colombian clients and the Chilean clients. I hope I answered your question there.
Thank you, Alex. Thank you.
Thank you.
Our next question comes from the line of William Barranjard of Itaú BBA. Your line is now open.
Good morning, everyone. Thanks for the opportunity. My question here is regarding the capital market conditions in Brazil. Since the beginning of the year, it has tightened in credit and in equity as well. It would be interesting to understand how this environment is impacting you, be it in terms of opportunities for investments at a lower valuations or an extra care for current invested names that are having maybe a harder time due to tighter credit markets here.
Yes, of course. Hi, William. Thanks for the question. Interesting that, you know, in Brazil, I think the credit markets tightened more because of one specific case that frightened the market, in general, as you know, the retailer named Americanas, than Silicon Valley and First Republic, etc . I think one thing may be added with the other, but if I would say, which is reason number one, I think reason number one is more the whole Americanas issue than, you know, external issues for the local credit market, as you probably know. Well, let me break down into different verticals here on. Starting with private equity. Our companies are not really leveraged.
We have today around 1.3x EBITDA of leverage without considering seller's financing. We have this consolidation strategy, and we do buy some companies with, you know, using seller's finance, but a big chunk of that seller's finance is linked to escrows and guarantees to contingencies that we pay out year number five, number six after closing. Of course it is seller's financing. We owe that money to the sellers. You know, we have a very long-term tenure, and it's linked to all these things that I said, contingencies that can potentially become liabilities or guarantees for escrows, et cetera. It's a very accretive way of leveraging, to be honest. The average cost that we have on our seller's financing is inflation +2 in Brazil.
As you know, inflation running around 5-ish + 2 is around 7. It's actually way below even the CDI rate in Brazil. It's a low cost of leverage. It's a low leverage as a multiple of EBITDA. The cost of leverage for that seller's financing is also low. Of course, the bank debt are market terms, but we don't have a lot of bank debt in our balance sheet. Yes, of course, in general, the credit tightness affects us because we do manage 42 companies in Brazil and LATAM, but nothing really in particular here or there. You know, if you're rolling one of that 1.3x EBITDA debt, of course, you're gonna face a credit tightness.
Given the, I think the solidity of the balance sheets of our companies and also because we have dry powder as well in most of our funds, I think we're fine there. Of course I'm generalizing, of course, there might be one case here, one case there, but in general, we don't see a big issue, even though we feel the credit tightening. On the infrastructure side, it's all project finance related debt, right? We don't do any investments that we first commit ourselves and then we go out running out and looking for debt. When we go into a concession bid, we have everything already locked in, right?
The all the costs for constructing that specific asset and of course, the all the debt already secured for that concession. If we do win the bid, everything is already locked in and the debt is project finance type debt, which is then definitely, you know, relates with the assets and the projection, the cash flow projections of that asset, and of course, the same currency. In addition, we, what we do, raise money in, you know, inflation plus on our projects finance debt in infrastructure. Why? Because our revenues are adjusted, corrected by inflation. In the end of the day, it's basically the spread.
Again, the spread is locked in in day one because we go into those concessions with everything already signed. And your institution, Itaú, is a major partner of ours in several of these projects. That's on the infrastructure side. If you go to the credit side, is the opposite, right? Now we're benefiting from that credit tightening because as you know, 99% of the debt in the region is variable. Now, as we have a very small portion of the debt in the region that is fixed rate. We do of course, we did came in with the right strategy of very short duration before, you know, the interest rate hikes. That's why today, our funds are performing so well.
As mentioned during the call, our credit funds. Our high yield, for example, LATAM credit fund has a yield to maturity today of 17% in U.S. dollars. It's extremely interesting time for you to invest in the fund and invite all of you here in the call to become, if you're not, one of our clients. It's a very interesting opportunity and a very interesting yield to maturity because of the right strategy of getting into this, you know, tightening phase two years ago with a very short duration portfolio. Again, we feel, we see it, but it's not really affecting us.
Taking on new debt, the cost of debt did not raise significantly in Brazil, to be honest, for good projects on the infrastructure side. We're continue managing to close on these consortiums, of construction companies and financial partners for new concessions. The spread for the projects that we are looking into have not changed much from today versus six months one year ago. Hope I answered your question.
That's very clear. Thank you.
Thank you. Our next question comes from the line of Domingos Falavina of JP Morgan. Your line is now open.
Thank you. Good morning, everyone. I had a question regarding the net accrued performance, specifically on P5. You recognized the performance on the Lavoro deal, which was a $10 million contribution to the, I think it was like 15 16 performance and then to the earnings. You had a mark-down of $44 million. I'm curious to know how much of the $44 million is linked to the Lavoro deal.
They are different thing. Well, first of all, hi, Domingos. How are you? Thanks for your question. I'm sorry I've started already answering your question.
No, it's good. Efficient.
Efficient. Sorry. Sorry about that. We have a huge stock, right, inventory of Lavoro. The Fund V has approximately $800 million-$1 billion of Lavoro stock. And that inventory, the $40-something million that you mentioned, it's over this $1 billion. That's why it looks like a big absolute number. As a percentage of what Fund V has of stock in Lavoro is a small percentage, $40-something over $1 billion.
Just so that I understand the math here. Is it like you had valued it, at $800 million more, and then you marked down in $800 million, and then the performance is 20% from that ballpark $800 million?
Yes. Exactly, exactly.
I'm sorry. Should be $200 million, right? $200 million. It was overvalued in two hundred, 20%, $44 million adjustment.
Yes, yes. That's exactly it. Let's say $1 billion. The numbers are not really different from that, to be honest. Coincidentally, we had now $1 billion worth of stock. Fund V had $1 billion worth of stock of Lavoro. Then as when we IPO the company, as of the IPO, when we did the IPO in the end of the quarter, of the first quarter, Domingos, from that point onwards, you have to mark the company using the price of the shares. After the, after the IPO, the prices of the shares traded down. Traded down in your example there by 20% from $1 billion- $800 million is $200 million less, 20% of that, which is our performance fees, the $40 million.
That's exactly right, the example that you're using. The numbers were more or less similar to what you just said. Again, after an IPO, we don't mark the company using our discounted cash flow model. We use the price of the stock. In these de-SPACings, the volatility of the stock is pretty high. The company posted incredible 2022 numbers, over 80% increase in EBITDA, 880 . Nevertheless, the stock do trade up and down tremendously during the after the IPO. Actually, after the IPO, the stock went up 30% from the IPO price, and then went down 20%, and it went up 15%, it went down 10%.
We just have to get the average of the last 10 days, and that's the number that we use for marking purposes. That's exactly what you said, Domingos. I hope I answered.
Super clear. Just so that we have an idea, what else Like, given this is already collecting performance, what other big assets, or is doing in P5, like, in terms of notional? Ballpark, like $800 million from Lavoro and what else?
Well, we the fund, if we go to the mark of this fund, is yielding a $2.2 billion, 2.2x MOIC, multiple of invested capital, net of fees. It's a $1.8 billion fund. You know, $1.8 billion, you know, 2x to be easy here, 3.6. Then 3.6 minus the $1.8 billion of costs is $1.8 billionx 20%. This is the very interesting fund for us in that front. It's a large, sizable, scalable front, fund. Lavoro is the first company that actually is looking to an exit through this IPO.
In addition, we did take one of the companies of Fund V public early 2022, which was Smart Fit. I think that was it. I think it was early 2022, if I'm not wrong. Smart Fit is, as you know, is a public company, but I can say because they're, you know, public information is performing extremely well. Recovered completely from COVID. You probably know that during COVID, we had to close all the clubs, but we're back to 2019 and better. We started selling some of Smart Fit's shares through block trades. We did sell a small amount in the first quarter, around $15 million. We tested the market there, and it did work very well.
You know, so these two companies are listed, and these two companies where we do then see, follow-on offerings and block trades that will contribute to the liquidity and the DPI distributable paid-in capital for Fund V. We are in advanced negotiations to sell other assets of Fund V, namely two, one in the food distribution sector, and the other one in the healthcare sector. No Fund V is a real successful fund for us, Domingos, and we're very happy with it and very happy with the, there's the potential performance fee generation of this fund.
Yeah, no. I'm sorry. Like, I didn't mean to ask any kind of pipeline. I meant more like just facts inside. You have Smart Fit, Lavoro, healthcare is Athena, right? Then something in food. Those are the main assets?
Yeah. We have in healthcare, we have two very important assets in this fund. I'm sorry, Domingos. Athena, which is this integrated health plan with hospitals chain that you know, and we have also a company called Opty, which is the market leader in optical surgical centers. You know, it's a network of several surgical centers and around Brazil. That's also a very, very important company for Fund V, very profitable company. One agri-business related company, Lavoro, that we mentioned that went public. Three healthcare wellness related companies, Smart Fit that went public. Our, you know, network of gyms. Athena, the network of hospitals integrated with health plans and Opty, a network of surgical, optical surgical centers.
Well, last but not least, because it's a very important portfolio company of Fund V, Delly's, which is a food distribution company. We basically, we buy products from the main food consumer driven companies, and we sell to restaurants, hotels and small retail shops. These are the main assets of Private Equity Fund V.
Perfect. Thank you so much, guys.
No, it's a very. Again, it's a really, really good fund, and they're very excited. All the companies are doing well to very well. We can go into also Private Equity Fund VI. It's a newer fund, but also the companies there are doing very well to very well as well. These are the two funds that we're focusing on divesting Private Equity Fund V coming first because it's an older fund and then coming Private Equity Fund VI. Thank you.
Thank you. Our next question comes from the line of Mike Brown of KBW. Your line is now open.
Okay, great. Apologies if this has already been asked, Alex. I joined the call a little bit late, but maybe just one for me on infrastructure. Clearly that's been a very attractive asset class here, particularly in a high inflation environment that we've all been living in globally. As inflationary pressure starts to wane in many markets, and perhaps we actually enter into a rate cutting cycle, how do you anticipate LP interest for this asset class to progress? Does it impact your ability to deploy over time? Just interested to hear your thoughts as we move throughout 2023 and into 2024.
Yeah, I think this infrastructure fund that we're mentioning. Well, again, sorry. Hi, Mike, how are you? Again, start answering your question without saying hi. I'm very sorry about that.
Oh, doing well. Thank you. Thank you.
As far as this strategy, the infrastructure development fund, it's a private equity approach to infrastructure. We take on development risk on this fund. We do win a concession, for example. We then construct the asset, and then after it's operational, we sell it. It does have this, you know, private equity component, and that's why it actually does deliver higher returns versus a yield fund.
This mixture of having the downside protection with no contracted revenues because, you know, you're part of a concession and revenues that are corrected by inflation that you can leverage very accretively because the leverage is a project finance type leverage with the same kind of index that you're correcting your revenues, you really hedge there. In addition, you're taking that compression benefits because you're constructing something. It's you have the whole ability to construct something that generates a higher interest rate because of course, the challenges associated to constructing something and then the compression ratio because you're selling something that it's operational and generates this very healthy cash flow because it's an operational infrastructure asset. I think that characteristic that I just mentioned, it.
Of course, interest rates do change appetite here or there, but we raised very large funds when interest rates were lower. Our Infrastructure Fund IV is a $2 billion fund, it was raised, you know, four years ago when interest rates were really low. Now we're having, you know, very good appetite for our Infrastructure Fund V, where interest rates are a lot higher than they were four years ago because of, I think of this characteristic. Given this, the addressable market of in LATAM, addressable market for this fund means no concessions and privatizations and, you know, these sorts of projects that are going on in the region. It's really, you know, a drop in the ocean.
Just I think we see over $100 billion worth of concessions going on in the region over the next 18-24 months, and we are running a $2 billion fund. It's, you know, it's really, you know, the huge addressable market. There's a scarcity of capital advantage there. Not a lot of players. Actually, we don't see no players at all on the from a no financial sponsor side playing this market, so we're pretty much alone. I think it's the very well-positioned product that we have, given the landscape, the addressable opportunity landscape and given the competitive landscape that, you know, we're, you know, one of the very, very few players with scale that can actually play this market. I continue to be with the infrastructure team, very excited.
I think what we do now is, you know, definitely can be exported to other places in Latin America, as we have done, or even the world. Interesting because the suppliers of the products that we actually then construct the assets are global suppliers, so we're doing a desalination plant in Chile, and it's an Israeli supplier of that technology that is a global supplier of that technology to other desalination plants around the world. When we build a wind farm in Brazil, the supplier of that wind farm is the same. The GEs of the world, the Siemens of the world, that supply, you know, these equipments for wind farms all over the world.
Very interesting, because we're dealing with these global suppliers, but locally in Brazil. They could be, you know, wind farms in any place of the world. Again, excited with the competence that we have built, excited with the opportunity to continue fundraising for this fund. I see a good appetite, very good appetite for raising our infrastructure fund size. I'm pretty positive, Mike, on the product.
Great. Thanks, Alex. It sounds like a very robust outlook for our infrastructure here.
Yeah.
I'll leave it there.
Yes.
answering my question.
Yeah. No. Thank you. Thanks, Mike. I agree on that. I just wanna get back to one of Domingo's points here. Just to be clear, the $10 million of performance fee that we accounted for in the first quarter is the general partner stake of the performance fee, right? The performance fee was $15 million in total. 35% of that was approximately $5 million goes to the team, and then 65% goes to the general partner, which is the $10 million, right? Just for, you know, clarification purposes here. When we talk about the $10 million, it means the 65% already. Now, we already netted out the 35% that goes to the team. Okay, so just to be clear. Okay.
All right, Operator, any more questions, please?
Thank you. We do not have any other questions. I would now like to turn the conference back to Alex Saigh, CEO, for closing remarks.
All right. Well, thank you very much for your patience and for the questions of the call on this call. Again, very excited and positive about our first quarter 2023 results. We continue to be positive on the $150 million FRE for the year. We continue to be positive also on generating more performance fee than we did in the first quarter. Thanks again for your patience. Thanks for your support. Hope to see you guys soon personally. Thanks again. Be well, be safe.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.