Interview With Patria Investments (Strong Buy Reaffirmed)

Recently, our analyst, Samuel Smith, who leads our sister service High Yield Investor, had the chance to talk with Patria Investments (PAX).

Below, we share key insights from that interview, and what it could mean for investors.

You can read our full investment thesis by clicking here.

Patria Investments (PAX) is our single-largest position. The reason for this is that it combines an attractive dividend yield with a conservative balance sheet, trades at a steep discount to other alternative asset managers, and has very strong growth momentum, with expectations of rapid growth continuing for years to come. As such, it provides us with a high total return potential along with diversified exposure to Latin America, making it a valuable component of our International Portfolio.

Q2 was another strong quarter for Patria Investments as management fees increased 15% year-over-year, Fee-Related Earnings increased 17% year-over-year, and on a per-share basis, FRE increased by 11% year-over-year. The discrepancy between FRE and FRE per share is attributable to an increase in share count from employee compensation, as well as shares issued as part of acquisitions.

However, management has not yet bought back any shares year-to-date and emphasized that they are going to buy back stock in Q3 and Q4 to help absorb some of the dilution from acquisitions and shareholder compensation. They also mentioned that the share count should remain in a very stable band over the next several years, which would also further reduce this headwind to FRE per share growth.

Even still, an 11% year-over-year FRE per share growth rate is quite solid when you consider the mid-single-digit dividend yield that the company is paying out. Meanwhile, assets under management increased 21% year-over-year, which bodes well for continued FRE per share growth.

Fundraising continued at a brisk pace at $1.3 billion during the quarter, and net accrued performance fees at the end of the quarter stood at $2.47 per share, providing a significant amount of additional distributable earnings to be unlocked in the coming quarters.

Overall, we remain quite bullish on the company's outlook moving forward, given that it is ahead of the fundraising pace that it expected to be at thus far this year. Additionally, its net accrued performance fees set it up for strong distributable earnings generation in the coming quarters, as management also emphasized.

Management also noted that its Infrastructure Fund III has $47 million of net accrued performance fees and is in full realization mode. This constitutes about one-eighth of the total net accrued performance fees, and they expect to realize those fees over the rest of 2025 and through 2026. Additionally, they expect to unlock about one-third of their net accrued performance fees through the end of 2027, which means that they should be generating about $0.80 per share in performance-related fees over that period. That should give them a nice additional tailwind that can be used to fund buybacks and potentially grow the dividend.

When you combine the strength of their fundraising with the net accrued performance-related fee tailwind—alongside the very strong balance sheet with net debt to FRE of just 0.6 times, which is well below its 1.0 times target range—they have significant flexibility to continue investing opportunistically in growth opportunities via M&A, as well as to execute their buyback program. Hopefully, beginning next year, they can begin to grow the dividend as well.

Ultimately, it depends on how macro factors and the growth of the business are looking, but management indicated on the earnings call that if things look as good as they think they will by year-end, they will be prepared to revisit their dividend policy—i.e., grow it. This should provide a meaningful catalyst for the stock price, as it would signal confidence to the market and also establish Patria Investments as a dividend growth stock.

Earlier this summer, I had the opportunity to interview PAX's CFO (which you can reader here). Then a few days ago, I had a follow-up interview to go over the Q2 results and forward outlook in greater depth. Below is the transcript (note that it has been revised for clarity):

HYI: With leverage below your target and the stock selling off early in Q2, why did you not repurchase shares?