Patria Sells Overdue Management Fees Owed by its Own Fund

Banco Santander buys Patria receivables at an 11% discount to face value

Patria Investments Ltd., having waited years to collect management fees from one of its worst-performing private equity funds, decided to unload the overdue payments instead.

The firm, ranked among Latin America’s largest asset managers, sold about $66 million of outstanding management fees to Banco Santander earlier this year at an 11% discount to face value, according to regulatory filings. Patria Brazilian Private Equity Fund IV had earned the management fees on paper from clients in prior years, but, being tight on cash, delayed passing along at least some of the receipts to its parent.

Private equity firms worldwide have faced weak markets for selling their portfolio holdings since the pandemic, straining their ability to generate cash and return money, though it has usually been their investors who got stuck on hold. While dealmaking has begun to pick up in countries such as the U.S., things remain slow in Latin America, including Brazil, which is ranked by S&P Global as the region’s largest private equity market.

``Latin America, with fewer large ticket investment opportunities, has fallen behind as a preferred destination for global private equity investors,’’ Todd Crider, the head of Simpson Thacher’s Latin American practice, and two of his colleagues wrote in the Latin Lawyer last month. In Brazil, ``exits during the first half of 2025 pale in comparison’’ with the four prior years in terms of transaction value.

Patria officials didn’t return telephone calls and emails seeking comment.

Non-Current Fees

Patria has been postponing the receipt of management fees from Fund IV since at least 2020, when the firm filed for its initial public offering. As of that September, the firm disclosed $33 million of ``non-current’’ management fees due from Fund IV, according to IPO documents, noting that it had agreed to wait until December 2021 to start collecting the money under a payment plan scheduled to run through December 2023.

Instead, the amounts due to Patria from Fund IV have doubled since that time, with Patria explaining in its most recent annual report that it has been postponing collections in light of Fund IV’s ``cash needs.’’ Things changed on June 25, according to a recent filing, when Patria sold the right to receive $65.6 million in management owed by Fund IV to Banco Santander at a ``discounted amount’’ of $58.4 million.

Banco Santander’s profit from the deal will theoretically depend on how quickly it receives the management fees; if it takes less than a year, the bank’s return could exceed 11%, whereas waiting longer than that would translate into a smaller gain. And thus, the bank would benefit from an upturn in Brazilian dealmaking that allows Fund IV to cash in holdings at more favorable prices.

Patria, which remains responsible for actually collecting the overdue management fees from its fund, and then passing along the money to Banco Santander, would also gain from stronger markets under the terms of the sale.

The deal with Banco Santander provides Patria a bonus of sorts if it collects the full amount owed in less than two years, the filing says. Once the two-year anniversary of the sale rolls around in June 2027, Patria would be required to pay back any portion of the receivable that it has yet to collect from the fund.

A New Decade

Fund IV dates back to 2011, just after a new decade had gotten underway. With investors flocking to Brazil, China and India, the three emerging markets had overtaken the U.S. as the preferred place to invest. according to a Bloomberg poll published in September 2010.

Later that month, Blackstone Group LP — now Blackstone Inc. — announced that it would buy a 40% stake in Patria. Blackstone Chairman Stephen Schwarzman said the move would allow its clients ``to benefit from the fast expanding business opportunities’’ in Brazil. (Blackstone sold its Patria stake in 2021).

Fund IV took in about $1.27 billion of capital commitments in 2011, according to a Patria shareholder presentation from earlier this year, and ultimately invested almost the entire amount. Some 14 years later, the fund had only sold about 25% of its $1.2 billion investment portfolio, according to the presentation.

Patria may be delaying asset sales because Fund IV has little to show in the way of profits. Its net internal rate of return stands at -4.0% in dollar terms, the only Patria private equity fund out of seven listed in the shareholder presentation that has negative returns.

``PE interest has broadened to encompass attractive markets in Latin America, particularly Brazil’s,’’ Bain & Co. wrote in Forbes in May 2011. ``Whether returns will be as great as the interest is still an open question.’’