Yesterday I took a bit of time to review what Patria Investments, a LatAm focused alternative investment manager listed on Nasdaq, guided for 2022 on their Q3-21 earnings call. It made me want to review what my variant views on the business are – or said more simply, why do I own it.
Here are my thoughts:
- LatAm, especially Brazil, favors local investors / knowledge as multi-nationals have failed repeatedly in these relatively closed economies, which supports longer runway for alpha generation than market believes.
- Patria has and will continue to lay groundwork to emulate the Blackstone playbook with respect to product buildout across credit <> equity and perpetual core <> opportunistic drawdown spectrums, driving potential TAM expansion and acceleration of growth
- Patria’s low current wallet share of global mega LPs enables rapid AUM growth as investment capacity increases
- The alternative asset manager business model (both FRE and Carry) is more durable and predictable than the market believes, and the market offers them up at reasonable prices as a result
Current valuation is not dirt cheap, it trades for ~20x 2022 FRE1. Add in $0.30 / share for carry2 gets me to ~$1.10 / share in DE or ~15x DE.
15x is a fairly reasonable price so long as the company grows in the 15% range, and that does not include the ~$200m sitting on the balance sheet earmarked for M&A (another potential $0.15 / yr3 in DE). It’s cheap if it continues performing at the ~25% FRE growth that it has been performing at in recent past.
Based on the setup I described above, I think the business is well positioned to grow at a reasonable rate over the medium term with little business complexity, no debt, high insider ownership, and well-supported shareholder dividends. It may also offer reasonable shareholder returns as a result.
Disclosure: I own shares of PAX, this isn’t investment advice. Do your own work.
1 – $75M in ’21 FRE, 50% growth for ’22, 140m shares, $16.5 / share
2- Current accrued carry is ~$315m, and if you assume they monetize over 5 years, that’s another ~$41m (35% of carry paid as bonus to employees)
3- $200m invested at 10x DE, based on guidance for future transactions and prior Moneda credit platform transaction (Q3-2021 earnings call)