Good afternoon and welcome to the Vinci Partners third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to turn the conference over to Anna Castro, Investor Relations Manager. Please go ahead, Anna.
Thank you and good afternoon, everyone. Joining today are Alessandro Horta, Chief Executive Officer; Bruno Zaremba, Head of Private Equity and Investor Relations; and Sergio Passos, Chief Financial Officer. Earlier today, we issued a press release, slide presentation, and our financial statements for the quarter, which are available on our website at ir.vincipartners.com. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and outside of the firm's control and may differ materially from actual results. We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our Form 20-F. We will also refer to certain non-GAAP measures, and you'll find reconciliations in the release.
Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Vinci Partners fund. With that, I'll turn the call over to Alessandro.
Thank you, Ana. Good afternoon and thank you all for joining our call. Vinci Partners announced today remarkable results for the third quarter of 2021. Fee-related earnings reached BRL 63.1 million, an increase of 74% year-over-year, a continued progress in FRE results. FRE margin reached 53.5%, over 300 basis points higher than 2020 full-year's margin. Distributable earnings totaling BRL 61.7 million or BRL 1.09 per common share, up 137% year-over-year. We ended the quarter with BRL 58 billion in AUM, with private market strategies and IPNS accounting for almost BRL 3 billion in net inflows in the quarter. These results build upon an amazing first half of 2021 and showcase our long-term growth trajectory.
Shifting to dividend distribution, from this quarter on, we will start distributing quarterly dividends. For the third quarter, the company declared a dividend of $0.16 that, combined with share repurchase, represented 100% of distributable earnings. Our business model is extremely capital efficient, which enables us to deliver strong organic growth while still paying out a relevant portion of our cash earnings to our shareholders. All these great results are a consequence of what we believe to be the key attribute of our business model and the principal message of our call, which is resilience. We are delivering outstanding results while facing some quite volatile market conditions in Brazil. One of the main attributes that make Vinci so resilient is diversification.
We have built one of the most diversified and complete platforms for alternative investments in Brazil, enabling us not only to go through but also to expand our business even during more challenging macro scenarios. As an example, from 2014 to 2016, Brazilian GDP dropped by 7%, and Vinci grew its AUM by 10%, and this was at a time when interest rates were in the low teens. We believe that the core strengths of Vinci remain unchanged and will allow the business to thrive even in periods of heightened market volatility. These core strengths include our AUM and revenues, which are well diversified within our seven different asset management strategies, in addition to our financial advisory business. Our proprietary funding base relies on five different groups of investors, from retail to institutional. Approximately 50% of this capital carries formal long-term lockups.
We have a leading and extremely well-recognized private markets platform. Lastly, a one-of-a-kind IPNS segment differentiates Vinci and has been a major source of growth inside the firm this past year. On the other hand, the current scenario has a short-term impact on fundraising for liquid strategies, with volatility impacting a more pro-cyclical investor type. In addition, our public market vehicles also present an additional challenge going back to market in such conditions. Nonetheless, we raised over BRL 350 million this quarter for one of our REITs, VISC11, through a pioneering pay-in-kind all-stock transaction in the REIT market. This will pave the way for additional transactions using the same structure, which allows us to grow AUM in our listed business even when primary issuance is temporarily more challenging.
Some parts of the business should actually benefit from the current market scenario. First, our investment income, as we currently carry an asset-sensitive balance sheet. Vinci currently has approximately BRL 1.5 billion in cash, with over 85% exposed to fixed-income products. Therefore, financial income is set to become a relevant driver for distributable earnings in the mid to long term with the rise in interest rates until proceeds from the IPO are gradually shifted from cash allocation into private market funds GP commitments. We are also very excited about prospects in private credit fundraising. The team is in the process of putting out a new listed product, and we expect significant demand for credit products going forward. We believe this to be a great opportunity in the marketplace, with traditional credit vendors still holding most of the market share in credit in the country.
Due to our diversified platform, we can mitigate risks by not being overly concentrated in a single asset class, and we benefit from the growth tailwinds of at least one of our segments, as we have seen this year with IPNS, private market funds, and the advisory business. Our management team remains confident that we will continue to grow our platform and generate attractive results for our shareholders. Moving on from this quarter's financial results, I would like to share with you two exciting pieces of news for Vinci. First, we are proud to announce that Vinci Partners is the first Brazilian asset manager to receive the Women on Board seal. Women on Board is an independent initiative that seeks to recognize, value, and publicize the presence of women on boards of directors or corporate advisory boards.
As we discussed in our last earnings call, the independent part of our board of directors is composed of four independent members out of a total of eight seats, with two of them being women since we appointed Ms. Sonia Favaretto to our board in August 2021. We are extremely active in our ESG commitment and have installed an ESG committee reporting to the board of directors with Ms. Favaretto as its chairperson. Finally, we are thrilled to share with you the official launch of Vinci's first-ever marketing campaign, built on the pillar, "Reputation is the best investment." The project reinforced some of our main values: transparency, solidity, ethics, and consistency, which together build up our most valuable asset, our reputation. The campaign features two Brazilian personalities who parallel these Vinci values.
The singer Maria Bethânia, who has a consistent and successful trajectory, and the equestrian athlete, Olympic and world champion, Rodrigo Pessoa, are featured. In addition, we are also modernizing our brand and visual identity in line with this new moment of growth, always in the best Vinci style. The campaign's content and advertising have been launched in all major advertising outlets in Brazil. We are very encouraged by the feedback on the project so far and expect it to consolidate Vinci as a reference for alternative investments in Brazil. I would like to thank you all for your continuous support and interest in Vinci Partners. With that, I will turn it over to Bruno to go over our financial results for the quarter.
Thank you, Alessandro, and good afternoon, everyone. Starting on slide 9, we go over AUM rollforwards for the quarter and year-to-date. We ended the third quarter with BRL 58 billion in AUM, driven by strong fundraising of BRL 2.6 billion in the quarter. Our private market strategies raised approximately BRL 600 million of long-term commitments, with highlights to our real estate and infrastructure strategies. In real estate, our shopping mall REIT, VISC, raised BRL 364 million through a pay-in-kind stock transaction, as Alessandro mentioned before. In infrastructure, we carried out the second closing of VIAS, our water and sewage strategy. The fund has raised so far BRL 384 million.
The fund is focused on private market allocation and raised BRL 61 million in this first round of funding. We expect to continue fundraising for this strategy throughout 2022. Our IPNS business is currently composed mostly of liquid allocations. With VSP, we are adding a new capability within the firm, which we believe opens a highly relevant addressable market for us, where very few players have the track record, knowledge, and experience that Vinci does. Additionally, we had BRL 2 billion in net inflows during the quarter, most of it coming from IPNS exclusive mandates, with BRL 1.9 billion raised in the quarter, while fundraising for credit funds accounted for BRL 223 million. AUM was impacted by a negative BRL 1.6 billion from funds depreciation, coming mostly from public equities following the 12% decline in the Ibovespa index in the third quarter.
Moving on to slide 10, we can see that Vinci continues to display solid trends in AUM growth compared to the previous year. AUM grew 19% compared to the same year-ago period as we continue to expand our platform by raising new funds and creating new strategies and investment opportunities. Long-term AUM, with at least 5 years of lockup, represents roughly 50% of total AUM. Perpetual capital almost doubled in just 1 year, primarily due to success in our listed fund strategies and currently represents 25% of long-term AUM. Furthermore, our AUM remains broadly diversified by duration, asset class, and distribution channel, as shown on slide 11. 43% of total revenue so far this year was sourced from private market strategies with management fees typically based on long-term capital commitments, thereby mitigating redemption and mark-to-market risk.
In terms of distribution, local and offshore institutional clients account for about 60% of our AUM, with the remaining 40% well-balanced across high-net-worth individuals and our high-growing retail dedicated distribution channels, allocators and distributors, and public market vehicles. We reached BRL 36 billion in performance-eligible AUM, as you can see in slide 12. This quarter, aside from IPNS mandates, we generated performance primarily through funds with no high water mark, such as our sovereign wealth mandate in public equities, given the overall decline in local markets during the quarter. On slide 13, we go through our fee-related revenues composed of management and advisory fees. Management and advisory fees totaled BRL 118 million in the quarter, representing an increase of 64% year-over-year.
Management fees were up 30% year-over-year, driven by our strong growth in fee-earning AUM across private market funds and IPNS. Financial advisory contributed with revenues of BRL 25 million in the quarter, adding up to BRL 47 million year-to-date. Advisory fees are up 105% compared to last year's first three quarters. This has been a very strong year for our financial advisory, and the group has driven important upside to our results due to much stronger deal activity in 2021. Our advisory team has had an exceptional year, and we believe several of the recently closed mandates represent an expansion of the team's core capabilities. An example is advisory service to early-stage and venture capital-type companies, which positions us well in a growing market in Brazil.
Turning to slide 14, we go over operating expenses for the quarter. Total operating expenses were up 57% year-over-year and 49% on a comparable basis to 2020 expenses pre-IPO, where we removed BRL 2.9 million in costs related to being a public company. These costs include the change in the company's compensation structure, hirings for board members and support teams in accounting and shareholder relations, and some third-party services such as Nasdaq listing fees and others. Additionally, during this quarter, we had BRL 2.2 million in expenses related to the company's new branding project. As we have been mentioning in the last few calls, we were in the process of launching a new branding project targeting domestic investors looking to raise brand awareness.
This resulted in Vinci's first marketing campaign, which has been officially launched in Brazil in all major media outlets, as Alessandro mentioned. We are extremely satisfied with the campaign's impact thus far and look forward to strengthening our brand's recognition as the leading alternative asset management brand in Brazil. Despite the new listed company costs and the branding project, expenses are growing at a slower pace than our revenues, which translates into FRE margin expansion. On slide 15, we present our fee-related earnings. FRE was BRL 63.1 million or $0.0112 per share, representing an outstanding increase of 74% year-over-year. Our FRE continues to be the core indicator of our business as management fees continue to grow alongside our strong fundraising.
In the year to date, FRE was BRL 168.5 million, an increase of 48% year-over-year. In the FRE bridge chart, we present the breakdowns of our fee-related revenues and expenses. Comparable FRE margin would have been 58%, 5 percentage points higher than our reported FRE margin for this quarter of 53%, and 8 percentage points higher than the FRE margin for the third quarter of 2020. We believe this information is interesting to show the operating leverage of the platform in a year of strong AUM growth. Both our new public company costs and the one-time strategic branding effort have represented headwinds for stronger margin gains this year.
Although we have been able to significantly grow FRE margins in 2021 versus last year, despite these effects, considering the positive trends in AUM growth so far, combined with higher fees coming from advisory, next, in slide 16, PRE was BRL 3.8 million in the quarter, up 192% year-over-year. This increase was primarily driven by higher performance fee contributions from IPNS international mandates, which were realized this quarter. We also had performance fees coming from our sovereign wealth mandate in public equity that charged performance based on pure alpha generation. Our international mandates in IPNS have been a major source of upside in performance fees year-to-date, representing 50% of all performance revenue generated by the company in the last three quarters.
We believe this business line has great potential to grow not only in terms of AUM but also as a source of future performance fees, in addition to our domestic IPNS business, and our liquid and private market strategies. Year to date, PRE totaled BRL 21.3 million, up 83% year-over-year. Shifting to slide 17, we will go over our realized GP investment and financial income for the quarter. We had BRL 1.7 million in realized income this quarter, coming from gains from our proprietary GP commitments in private market funds and our cash allocated in our liquid fund portfolio. The liquid funds portfolio underperformed the CDI quarterly return in the third quarter by 1.1 percentage points, a consequence of the extremely volatile market and widening of the interest rate curve in Brazil.
The portfolio's exposure to fixed-rate bonds, at about 35% of total allocations, suffered negative mark-to-market effects as interest rates began their rising cycle in Brazil. Despite this impact, the portfolio outperformed the IMAB index by 1.7 percentage points, as most of it today is invested in floating-rate bonds. Even as we face short-term impact in our fixed bond portfolio from the widening interest rate curve, we expect financial income to benefit from the recent increase in rates, as most of our cash allocations, or about 85% of the total, are exposed to fixed-income products. Therefore, once the interest curve settles after this initial widening, we should start earning bigger interest on our cash balance.
Turning to slide 18, distributable earnings were BRL 61.7 million in the quarter, or BRL 1.09 per share, up 137% year-over-year. This exceptional result was boosted by the growth in management and advisory fees, combined with realized performance fees coming from international IPNS funds in the quarter. Year to date, distributable earnings totaled BRL 163.7 million, or BRL 2.89 per share, up almost 90% year-over-year. We are also expanding our DE margin significantly, reaching 47% at the end of the quarter, up 12 percentage points year-over-year. Finally, on slide 19, we show our cash and investment balance.
We finished this quarter, the third quarter of 2021, with a total of BRL 1.47 billion in cash and net investments, or BRL 25.94 per share. Today, our cash and investment balances are comprised primarily of fixed income and liquid funds and will gradually be shifted into private market GP fund investments as capital commitments are called in the coming years. In the third quarter, we committed BRL 36.1 million to our private market funds, with highlights to a new credit fund, VICC, which is in the early stages of fundraising, and to VSP, our new strategy for private market allocation in IPNS. Total capital called during the quarter reached almost BRL 40 million, coming primarily from GCS in credit and new strategies in infra and real estate, VIAS and VFDL.
So far, the company has committed BRL 302 million to private market funds, with about half of that capital having been called by the funds. For more detail, please see slide 32 of this presentation. With that, I'll turn it over to Sergio to go through our segments.
Thank you, Bruno. Turning to our segment highlights, as you can see in slide 21, the strength of our business, as Alessandro stated in his prepared remarks, relies on the platform's diversification. 47% of our FIE year-to-date is coming from our private market strategies, followed by liquidity strategies with 21%, IPNS with 17%, and financial advisory contributing 15%. The same level of diversification is reflected in our segment distributable earnings, except for IPNS that increased to 23% of segment DE with its contribution in performance fees this year. Moving on to each of the segments, starting with our private market strategy on slide 22, FIE in the third quarter was up 7% year-over-year, following strong growth in fee-earning AUM.
Total AUM grew 16% year-over-year, and fee-earning AUM grew by 19% in the same period, highlighting important fundraises across our four strategies within private markets, such as the final closing for VIR IV, follow-on offerings in listed products across real estate and infra, and the launch of new strategies like VFDL and VS. Our deployment capabilities remain extremely strong in our private market strategies. Our flagship strategy in private equity, VCP III, recently announced its fifth investment with the acquisition of Farmax, a leading Brazilian cosmetic platform, resulting in a 71% allocation of the fund's commitments. The fund is expected to close its sixth transaction soon. In addition, VCP III has formally passed its successor fund allocation threshold, which means we are in a position to come back to market with VCP IV. VIR IV also closed an acquisition recently, which we announced through a press release last week.
An investment in Verdfrut, a Brazilian company focused on the fruit and vegetable market in the Northeast region. This transaction marks the fourth investment for VIR IV, resulting in a 33.5% gross allocation of its capital commitments. Our closed-end private market funds continue to deliver outstanding returns. VCP III is currently marked at a 51% gross IRR in reais and 36% gross IRR in dollars. FIP Infra Transmissão in infrastructure is marked at a gross IRR of 78.5% in reais and almost 60% in dollars. Turning to slide 23. Liquid strategies FIE was up 60% year-over-year, with a strong increase in management fee revenues with the end of the revenue-sharing agreement with Guias Investimentos by late 2020, which is the driver behind the expansion in average management fee.
Performance-related revenues were down 41% year-over-year due to a lower contribution from performance fees since most of our liquid funds carry a high-water mark benchmark, and with markets going down, are not able to charge performance fees. The only exception is our sovereign wealth mandate, which was the main contributor to performance revenues in the quarter. AUM and fee on AUM were down 17% year-over-year following significant market depreciation in the quarter. Moving on to our P&S business on slide 24. Following exceptional growth in fee-earning AUM of 59% year-over-year, FIE was up 75% year-over-year. PIA posted an even bigger jump, up 346% year-over-year, driven by very strong performance in our international separate mandates that was realized this quarter. Finally, on slide 25, our FIE for financial advisory totaled BRL 15.2 million in the third quarter.
In the year to date, advisory contributed BRL 25 million to the company's FRE, an increase of 95% year-over-year, a consequence of the much higher deal activity in 2021. As we go through our segments, it becomes evident that FRE and distributable earnings momentum is happening across all our business segments despite short-term market volatility. We believe the broad platform we have at Vinci puts us in a great position to continue with the positive momentum despite the recent market volatility in the country. Once again, we would like to thank you for joining our call and for your interest in our company. With that, I would like to open the call for questions. Operator?
Certainly. Ladies and gentlemen, if you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Ricardo Buchpiguel from BTG. Your question, please.
Good afternoon, everyone, and congratulations on the good results. I have only one question. We saw good resilience in terms of AUM this quarter despite all the market conditions and the worse macro environment, and this was maybe helped by good inflows and fundraising, right? And then also, it was potentially boosted by the diversification of the AUM. With that in mind, and considering the further deterioration of the market scenario you could see in the coming quarters, how can we expect this behavior for AUM growth and fundraising ahead? And also, if you could comment a little bit more about how you're seeing investors' appetite for new funds in private markets and other riskier types of vehicles. Thank you.
Thank you for the question. I will start answering you; this is Alessandro Horta. Then, if Bruno Zaremba or Sergio Passos would like to complement, I will let them jump in if it's necessary. As you saw, we have been able to—of course, we suffered in terms of mark-to-market, especially on the liquid side of the business—but we have been able to compensate that with the inflow that kept the average we saw during this year of around 1 billion BRL a month of net new money. We continue to see a positive market for some of our strategies, especially, as we mentioned, IPNS credit and some of our private market strategies.
On IPNS, it's clear that the trend we've seen so far of us winning mandates for a more complete asset allocation, both locally and internationally, still has some momentum. We saw a pickup of interest in our private credit products, and this is a consequence, of course, of assets migrating to more fixed-income-type assets. Finally, we have been able to raise money in our private market strategies, specifically in infra or even private equity. We're also creating new avenues to raise money in listed vehicles, like we did in real estate last quarter, with transactions where we acquire assets by issuing shares of the fund without accessing the market.
That's, of course, with this volatility, it's not so easy. Having said that, especially from public equities and hedge funds, we see a more challenging environment, not just for our products that are posting interesting performance, especially in public equities in terms of our peer group. Because the overall market, as we saw, shows an overall redemption of assets from these asset classes, and when we look at ANBIMA numbers, etc., we are not feeling that. But it will probably be a more challenging market, and we intend to compensate for that with IPNS, private credit, and some specific fundraisings in our private market strategies. Bruno, do you want to add to that?
Yes, just to complement Alessandro's answer, this is Bruno. We are in a position on the private market side where several of our funds are fully invested. We have already announced that our REITs and the listed infrastructure fund are all fully invested. On top of that, we recently announced another signing in our flagship private equity fund, Farmax, and we expect a sixth transaction to also be added to that fund quite soon. That would push the fund as well to close to a fully invested status.
We have a position today where, cyclically, we're going to be looking into 2022, which will have the potential of being a heavy year for private market fundraising in big strategies for us, right? VCP, the REITs, the infrastructure-listed vehicle, we are rolling out a new climate change fund in infrastructure as well. There are several strategies that are coming back and the other ones that Alessandro already mentioned. We do have initiatives that are lined up for 2022 that will work very hard to be able to compensate for a temporarily weaker environment for the liquid side of the business.
Makes sense. Thank you very much.
Thank you. Once again, if you have a question, please press star then one. This concludes the question and answer session of today's program. I'd like to hand the program back to Alessandro Horta for any further remarks. Oh, we just got a question. Would you like to take it?
Yes, of course.
Yes.
Yes. Our next question comes from Kaio Prato from UBS. Your question, please. You may have your phone on mute.
Hello, everyone. Are you listening now?
Yes.
Okay, great. Thank you very much. And thank you, everyone, for taking my question. I just have a quick one on the management fee rates. We see that the net management fees reduced quarter-over-quarter. I would just like to have more details on this trend in terms of management fee rates. We saw a reduction, especially in IPNS. I would just like to get a sense from you what we can expect going forward, specifically in the IPNS. And additionally, still on the rates, if this analysis with higher interest rates could enable you to have higher net management fees across strategies going forward. Thank you.
Thank you for the question. I think regarding IPNS rates, what happened is that when we win a mandate, we normally start allocating this money over time, okay? This starts more like fixed income, where when we receive the mandate for our liquid assets, we start allocating over time. There is a component of our fees that we can allocate to a certain limit in our own products, which normally carry high interest rates inside a fund-of-funds structure, for example. We can allocate this within IPNS, in one of our products, in one of our divisions. What happens is that the average management fee rate starts going up over time.
Since we have been growing during this time, we start in a lower fee bracket and grow over time. When we grow AUM, we normally reduce the fee bracket a little bit and then start recovering that over time. This is the question regarding management fee rates for IPNS. Regarding your question about interest rates going up and how that could interfere with the management fee rate, I believe that, of course, takes some pressure off the reduction in interest rates, even though we were not feeling that. There is some space, especially in IPNS, which was a very good point of yours, where we can charge marginally higher rates.
This is also true for private credit, which also relates to high interest rates, so we can eventually have higher management fee rates. I don't know if Bruno or Sergio would like to comment.
No, just to complement Alessandro, the average fee rates are numbers that we monitor all the time. We see a very stable environment across the verticals. The only relevant change was the change that we saw in the liquids part of the business with the change in the association with GAS late last year that created a more significant jump in the average fee rate for the liquid side. Other than that, the trends in management fees have really been very stable. Of course, the mix of the business changed a little bit this year with IPNS growing very strongly.
Other than the mix and its impact on the equity side with Guias Investimentos dissolving the JV, the other trends are very stable.
Okay, good. Thank you very much.
Thank you. This concludes the question and answer session of today's program. I'd like to hand the program back to Alessandro Horta for any further remarks.
Thank you very much for your continued support, as I said, and your interest in our company. Thank you for your attendance and all your support, and see you very soon. Any questions that you have, you may address to our investor relations group. Thank you.
Thank you, ladies and gentlemen, for your participation in today's conference. This concludes the program. You may now disconnect. Good day.