Good morning, and welcome to the Vinci Partners investor 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 morning, everyone. Thank you for joining us on short notice today to hear more on our transaction with SPS Capital. Joining today are Alessandro Horta, Chief Executive Officer; Bruno Zaremba, Private Equity Chairman and Head of Investor Relations; and Sergio Passos, Chief Financial Officer. We have issued a press release and presentation which are available on our website at ir.vincipartners.com or on Form 6-K filed with the Securities and Exchange Commission. I'd like to remind you that today's call may include forward-looking statements which are uncertain and outside of the fund's control and may differ from actual results materially. We do not undertake any duty to update these statements. For discussion of some of the risks that could affect results, please see the Risk Factors section of our 20-F.
Also know that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any Vinci Partners or SPS fund. With that, I'll turn the call over to Alessandro.
Thank you, Anna. Good morning, everyone, and thank you all for joining our call. We are thrilled to announce that we have reached an agreement to acquire SPS Capital, one of the top independent special situations asset managers in Brazil with BRL 2 billion in assets under management. With this transaction, we are bringing a highly experienced, top-performing, and best-in-class team led by Marcelo Mifano, Partner and Co-Founder of SPS, who will join as a partner of Vinci alongside Tomás Jatobá and Benjamin Citron, the other two main partners of SPS. The SPS team has extensive experience in the special situations investment space in Brazil. Mifano was head of BTG Pactual's corporate special situations strategy before founding SPS alongside Tomás Jatobá, SPS Co-Founder and former head of legal for onshore credit operations, also at BTG Pactual.
Mifano and Jatobá were subsequently joined by Benjamin Citron, a professional with vast experience in the special situations strategy, having worked more recently in Bank of America and Votorantim. We are confident that the SPS team will be a great cultural and business fit with Vinci and we as we share the same values and principles based on reputation, first-class human capital, alignment of interest with LPs, and a portfolio built on downside protection with the ultimate goal to create value for all parties involved. I believe our partnership with SPS is beneficial to Vinci in all fronts, starting with our consolidation in the private market space in Brazil. SPS will fill a strategic and extremely important gap in our platform that we can build on and grow into synergistic and complementary funds like we historically did in private equity, real estate, infrastructure, and private credit.
In addition, as mentioned, the SPS team brings a complementary investment experience to our platform, which we can leverage in cross-vertical collaboration within our private markets practices. To that extent, the SPS team is highly aligned with Vinci in terms of growth for additional vintages in their flagship strategy and new products. Since a relevant part of the transaction will be structured through an earn-out paid in Vinci Partners Class A common stock, subject to additional fundraising by the SPS team. Bruno will cover more on the transaction details in a few moments. We have worked consistently since Vinci's foundation to build a truly one-stop shop for alternative investments, and the acquisition of the SPS represents a significant milestone in our story, for which we believe really set us apart.
The continued strengthening of our platform positions Vinci well for the ongoing trend of LPs looking to consolidate their relationships around fewer GPs. SPS offers a set of differentiated and attractive risk-return investment opportunities in a market where there is a limited number of managers with track record and expertise. The team will continue to manage all three vintages in its current portfolio, maintaining its core investment process, oversight, and execution of the special situations strategy within Vinci. Our partnership with SPS will only add to their capabilities of raising additional products, combining their outstanding track record and management skills with our proprietary distribution. Another important factor in this partnership is that it represents the first M&A transaction since our IPO last year.
As we have been discussing in previous earnings conference calls, our team has been consistently analyzing opportunities in the M&A space, and we wanted to be extremely careful and considerate of our business model and our long-term goals when looking at this opportunity. What really captivated us when we started our conversation with SPS was, first of all, the team, a top performing management team with extensive experience in the market, combined with the structure we achieved for this transaction. Already accretive in distributable earnings per share in the low to middle single digits in the short term, and a potential for high single-digit accretion in the medium term. We are excited for what we can build alongside the SPS team.
The announcement today is only the beginning of what we believe will be a very successful and fruitful partnership for Vinci and our shareholders, who have been working persistently to deliver the best results and are totally focused on the long-term prospects for our company, raising new funds and delivering outstanding results to clients and our shareholder base. I'd like to thank you for joining us again. With that, I'll turn the call over to Bruno to cover the transaction in more detail.
Thank you, Alessandro, and good morning, everyone. Following up on Alessandro's remarks and moving on to slide five, I would like to give a little bit more color on the special situations market and where SPS is currently situated in the asset management space. Our team at Vinci has always been interested in the special situations market, and our partnership with SPS is the perfect first step into our expansion in this segment of the industry. The gap that will be filled by SPS means Vinci's origination platform will be able to take advantage of investment opportunities that were previously discarded, given that we didn't have a suitable capital pool to allocate them. We have until today refrained from adding this vertical to our business, given our inability to find a team that matched our culture with the performance standards that we are used to here at Vinci.
That has changed given the fit we found with the SPS team. We are talking about a sizable and really unexplored market in Brazil with a vast pool of asymmetric investment opportunities. First, the strategy presents considerable flexibility on capital allocation, which allows it to have adequate risk returns across all stages of the macroeconomic cycle. The Brazilian market is still pretty much unexplored, with a very limited number of players with the experience and track record in this asset class. The traditional credit markets are not open to our targets due to the complex nature of transactions, which creates a complexity versus eligibility opportunity. Usually, guarantee structures backing SPS transactions are more complex in nature, which tends to drive away capital supply from traditional, more plain vanilla providers.
In addition to a very attractive market setup, SPS has been able to carve out important key competitive advantages that strengthen their market position and enhance investment outcomes. These competitive advantages will be important drivers to capture the full growth potential of the strategy. The team has successfully raised all three vintages in their flagship strategy with a proprietary distribution channel composed mainly of Brazilian high-net-worth individuals with whom the SPS team has close relationship with. At this stage, SPS has no distribution agreements with third party or placement agents, no international capital, and no local institutional capital. We believe, given the combination of a strong track record with great capital deployment opportunities, there will be demand to allocate capital into the strategy over time from other capital providers, and this is an area where we believe there will be substantial synergies going forward.
The aforementioned strategic relationship with its current LP base has resulted in a differentiated deal origination network for SPS, really setting SPS apart from other special situations managers in terms of portfolio composition, which reflects directly in the fund's returns. SPS flagship strategy has been delivering outstanding returns, with all three vintages performing way ahead of their benchmarks, with total track record posting above 20% net IRRs. On top of that, SPS has an investment team with best-in-class reputation in the market, which for us is a key element for this transaction, where we rely on people that manage the business to really take it to the next level and create value within the platform. SPS Partner and Co-Founder, Marcelo Mifano, will join Vinci's executive committee, a forum reserved to the main partners of Vinci.
We believe he will become a valuable contributor to our vision as a company as we share the same values and long-term goals. In slide six, we bring some highlights of the special situations market in Brazil to highlight the size of the potential capital deployment opportunity in this new investment vertical. Write-offs have represented over BRL 500 billion over the last few years, a huge market for restructuring opportunities. There were over 75 million legal claims in Brazil, which is another area of focus of the SPS team. Total credit in the top 20 legal restructures represented BRL 290 billion, with approximately 7,000 requests for Chapter 11 over the last five years. This huge and unexplored market creates space to structure superior risk return investment opportunities, which SPS has been able to capitalize on through its all-weather approach.
The team invests through five different strategies with low correlation between them, with exposure to assets in different sectors and the opportunity to deploy capital across different market cycles. Transactions are structured in a way that combine equity-like returns with debt-like downside protection. The main goal being capital preservation in a downside case scenario. Turning to slide seven, SPS has experienced success on high growth trajectories since its foundation in 2017, fundraising three subsequent vintages in its flagship strategy in only five years. Their third vintage closed in November 2021, reaching BRL 1.1 billion in capital commitments, almost double the size of Vintage II. The acquisition of SPS Capital will enrich Vinci's FRE and distributable earnings composition.
We are acquiring a business model with recurring and highly visible revenue streams coming from funds with long-term lockups and a private market structure fee higher than Vinci's current average rates. As already mentioned, SPS has a high quality and proprietary investor base for which we believe we have the potential for upside for cross-selling our existing complementary funds to these investors. Finally, we expect to leverage SPS growth by building on, number one, a diversified knowledge and exposure to different private market business strategies. Number two, our entire distribution network to distribute SPS new vintages and new products. Finally, number three, potential JVs with other business segments within Vinci, which are highly synergistic and complementary to the sectors SPS has been investing in targeting their investments.
Moving on to slide 11, we present our AUM pro forma with the inclusion of SPS based on the end of the second quarter of 2022. We are disclosing an update on our AUM ahead of our earnings call on August 11 to bring better understanding of the transaction impact in our latest AUM. Considering the proximity of today's announcement to our second quarter earnings conference call, we will not be taking questions on inflows and AUM behavior in the quarter as they will be discussed in detail in our next conference call with all the disclosure necessary. Vinci ended the second quarter with BRL 60 billion in AUM against BRL 57 billion as of the end of the first quarter of 2022. Therefore, our second quarter pro forma AUM, including the acquisition of SPS, results in a total of BRL 62 billion.
Looking more granularly into long-term AUM, the additional AUM from SPS will drive an 8% growth in long-term capital balance at Vinci. We expect a low to mid-single-digit short-term accretion to distributable earnings per share with the transaction, with an upside to a high-single-digit medium-term accretion. This medium-term accretion target is based only on additional FRE from fundraising and capital allocation of existing funds, and does not include potential impacts from future PRE coming from this vertical. Given the nature and structure of the funds, there is substantial long-term PRE upside coming from this new segment. To finalize our remarks, we would like to go over what we believe is one of the key attributes of this transaction, which is the consolidation of Vinci's position in the alternative asset management space with a new private market strategy in our diverse portfolio of business lines.
As we can see in slide 12, one of the main strategic priorities since Vinci's foundation has been to expand into new and complementary products in private markets, an asset class that has still a very limited number of players with experience and who are able to raise and deploy capital in Brazil. We have grown our private market platform from our first vintage in our flagship private equity fund, VCP, in 2004, and have since experienced a series of milestones, such as the launch of our first credit fund, VCI I, in 2014. Followed by our first perpetual capital vehicle in real estate in 2017, which through the years grew into a BRL 5 billion strategy with several funds listed in the stock market, bringing additional perpetual capital to the platform.
We started raising our impact private equity fund and second vintage in Infra, FIP Infra, in 2017, followed by our first ESG fund in credit in 2018, VCS. In 2021, we launched two new strategies across real estate and infrastructure, VFDL and VIAS. Today, we announce a new milestone with the acquisition of SPS Capital and the launch of our special situations division, Vinci SPS. We believe there's enormous potential for SPS to launch new and adjacent products on top of its flagship strategy and really expand their business through the next years. Over time, grow into a multi-billion segment for Vinci.
We couldn't be more excited about the outlook for this vertical. Finally, in slide 13, we have the full spectrum of strategies across private markets in Vinci currently and how SPS has filled a strategic gap in our product offering. Moving on to an overview of the transaction on slide 14. Vinci will acquire SPS through initial cash component paid at closing. An additional consideration is to be paid in Vinci Class A common stock with a maximum number of shares issued of 1.7 million shares through an earn-out structure measured in late 2026. This earn-out is subject to the achievement of additional fundraising incremental management fee revenue targets, which ultimately aligns interest between the SPS and Vinci teams.
In terms of performance fees, the SPS team is entitled to receive 100% of all performance fees from Vintages I and II, which were fully invested prior to the transaction, and 70% of performance fees coming from Vintage III. Additional vintages and funds will be subject to Vinci's standard performance compensation structure for private market strategies. We're thrilled to welcome the SPS team to Vinci and to start working together towards building what we believe will be the reference special situations franchise in Brazil. Vinci is increasing the platform's reach, expanding product offering through a new strategy that we do not operate while adding a best-in-class investment team. On top of that, we see substantial upside for fundraising future vintages, and we have a sizable upside coming from performance fees from SPS Vintage III and future funds.
Vinci is adding BRL 2 billion in long term AUM to the platform with higher than our average fee, increasing the quality, stability and visibility of future results. To finalize, this is our first strategic M&A transaction since the IPO through a combination of cash from our IPO and our liquid currency in the form of traded stock to leverage inorganic growth. We are very happy with this step and we'll continue to work towards finding the best strategic opportunities for Vinci. Once more, we would like to thank you for joining us today. We're now happy to take your questions. Thank you.
To ask a question you will need to press star one one on your telephone. Once again, that's star one one. Please stand by while we compile the Q&A roster. Our first question comes from Ricardo Buchpiguel from BTG Pactual. Your line is open.
Morning, everyone. Congrats on the deal. I have a few questions. First, I wanted to get an idea on what to expect in terms of AUM growth for the SPS after it brings in the Vinci platform, perhaps compared to other strategies, just to get an idea. I also wanted to get more color on the economics of SPS funds. If you could perhaps share what is the revenue yield, perhaps EBITDA margin and the mix between FRE and PRE, it will be helpful. For my final question, could you also please talk a little bit about right now how is the competitive and fundraising environment for the special situations industry? Thank you.
Speakers, please, unmute your lines.
This is Alessandro Horta here speaking. Thank you very much for joining us today. I'll try to answer the first part of your question, then I'll leave Bruno to talk about more the economics and margins of the SPS business. As we highlight in this call today, SPS, they just have three vintages where they have the flagship strategy that's divided between different, I'll say strategies inside the special situations strategy. The last vintage that they raised, the end of last year, is BRL 1 billion +, BRL 1.1 million, if I'm not mistaken, the exact number. We, as we highlighted, I would say the majority of this capital just came from high net worth and family offices in Brazil, small institutional investors.
They do not have, today, or foreigners, or the more traditional institutional investors like the local pension funds with a sizable amount of their AUM. We expect that together we can expand a lot, even maintaining the same flagship strategy for the next vintage, a larger pool of capital because the opportunity universe is very big. Just keeping the ongoing strategy with the flagship fund, we believe that we can grow to a larger AUM to the next vintage of the flagship strategy.
Together with that, we are not saying right now, but we believe there is a lot of adjacent strategies to be done, especially because as you know, the credit market in Brazil is very untapped from the point of view of the asset management industry. We believe that the SPS team and the SPS track record brings a lot of knowledge and synergies to Vinci that we can explore in the future. We believe that we can grow a lot.
And complementing with the rest of the special situations universe, the other asset managers that tap into this, what we notice in our research is that even when they have investing strategies that are in a way similar, even if the market's very big, the pool of capital that they tap from, it's very different. There is some houses that tap from corporates, others from more high net worth, others distribute the product through platform or through placement agent. We do not have a common type of AUM, I would say, distribution between this. This shows that's really a nascent market that there's a lot of opportunity to explore. With that, I'll leave to Bruno to go into more detail about the numbers and the multiples of the business.
Okay. Thank you, Alessandro. Thanks for the question, Ricardo. Talking about the business, the profile of the business is very good, is aligned with our best margin products, right? When you look at the revenue streams and the profile of the economics of the special situations products that are brought into the platform with SPS, they are towards the higher end of what we have in our business today. We're talking about full fees, long-term lockups, a product that has a very high potential from a PRE standpoint. At the current level of size of product, we already have several hundred million potential revenue from PRE, as a potential for each vintage.
On a relative basis, just to give you some guidance, the fees. The fees of the product, as I said, they are in the higher end. If you look at our private market division, they are higher than the average of our private market division today, which is around 1%. If you look at the margins, the margins that are being brought into Vinci are higher than the average margin of Vinci and are towards the higher end of our private market segment. They're gonna be accretive from a margin standpoint as well. PRE, despite the fact that there's a lot of upside, it's more into the future.
As we have explained funds one and two, the PRE will be 100% reverted back to the SPS team given that the funds are already in the distribution modes, so they're already fully allocated and already distributing back capital to LPs. We're gonna have a smaller take in fund 3. If you look into the product from a structural standpoint, the PRE side is similar to what we see in the more like a carry style, absolute return style private markets fund that we have, like VCP, VIR, VFDL. That's the kind of upside from PRE that we see in this product. There are adjacent products as Alessandro mentioned.
I think there are several things that we can do alongside the SPS team that are not specifically the flagship, but we see a substantial amount of growth just from the flagship. We see this product as being a multiple billion vintage product. It's a-cyclical, almost a-cyclical product. It can perform independently of the macroeconomic environment. The setup of the transactions are very interesting. They're backed in a lot of cases by real assets and a lot of recovery in the case that the performance of the underlying asset does not go as expected. There's a lot of downside protection embedded in the structure. We feel very favorable about the outlook of raising a bigger fund going forward in the vintage.
In the flagship strategy as well, new vintages in the flagship strategy. The last point that I would make here is that the high single-digit medium-term guidance that we did on the DE standpoint does not include PRE impact, and it does not include goodwill impact. There's gonna be a lot of goodwill generated by this deal that's gonna sit in the balance sheet of Vinci and that we expect to optimize our tax structure over time. It's not gonna be done in the immediate future, but it's something that can add value for us in coming years. It's also an important point. Finally, just to wrap up the question.
When we talk about DE accretion, just remember that there's an offset between FRE and financial income. The DE encompasses both those impacts. We gonna have a cash outlay at closing, so the financial income line is gonna probably reduce a little bit given that cash outlay. It's gonna be more than compensated by FRE, and that the net of the two is the fact that we're guiding for the distributable earnings line. I think that's another important component when you work on your models. Thanks again for the question.
Thank you. Very helpful.
Thank you. I'm not showing any further questions in the queue. I'll turn the call over back to Alessandro for any closing remarks.
Good morning again, and thank you very much. We are very, very optimistic with the prospects of Vinci SPS. The complementary knowledge and experience, especially regarding the credit universe, will be very helpful to address the huge opportunity that we see ahead. Thank you again for your joining us today and your continued support.
This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.