Noah Holdings Ltd (NOAH) 2011 Q4 法說會逐字稿

Welcome to the Noah Holdings Limited Fourth Quarter 2011 Results Conference Call. At this time all participants are in a listen-only mode. Following management's prepared remarks there will be a Q&A session.

(Operator Instructions)

As a reminder, this conference is being recorded. Joining the conference today are Ms. Jingbo Wang, Co-Founder, Chairwoman and CEO, and Mr. Tom Wu, CFO. After the close of the US market on Monday, Noah issued a press release announcing its fourth quarter 2011 financial results which is available on the Company's IR webpage at ir.noahwm.com. This call is also being webcast live and will be available for replay purposes on the Company's website.

I would like to call your attention to the Safe Harbor statement in connection with today's call. The Company will make forward-looking statements including those with respect to expected future operating results and expansion of its business. Please refer to the risk factors inherent in the Company's business and that have been filed with the SEC. Actual results can be materially different from any forward-looking statements the Company makes today.

Noah Holdings Limited does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law. The results announced today are unaudited and subject to adjustment in connection with the completion of the Company's audit. Additionally, certain non-GAAP measures will be used in our financial discussion. A reconciliation of GAAP and non-GAAP financial results can be found in the earnings press release posted on the Company's website.

I would now like to turn the call over to Ms. Wang, CEO. Ms. Wang will be speaking in Chinese and Mr. Shang Chuang, the Company's IR Director will translate her statement into English. Please go ahead.

(interpreted) Thank you, operator, and thank you all for joining us today. With me today is Tom Wu, our Chief Financial Officer. I will provide a brief overview of our business in 2011, the opportunities and challenges that we saw, as well as our strategy for 2012. After that Tom will discuss our detailed financial and operating results. We will then be delighted to answer any questions you may have.

Overall, we are satisfied with our 2011 performance. For the year, we recorded a total transaction value of US$3.5 billion and our net revenues grew over 90%. Our number of registered clients increased from 16,000 to 27,000 which translate into 200 new registered clients per week. We will continue to grow our registered client base, and in 2012 we expect to add 300 to 400 registered clients every week. On a non-GAAP net income basis, we made US$26.1 million, representing nearly 100% growth compared to the previous year.

I would like to briefly recap the strategic prerogatives we have set out to accomplish one year ago. First, we had planned to scale our business through network expansion by reaching 58 to 60 branches. We added 20 new branches in 2011, and we currently have around 60 branches nationally.

Second, we wanted to expand our product development team to cover more product providers and to be able to select higher quality products. Last year we established new product teams in Beijing, Shenzhen, and Hong Kong, as well as strengthened our team focusing on A-Share products.

In 2011, we distributed 76 products and in each of our product categories we worked with leading product providers. For fixed income products, we distributed products from leading companies in China such as Vanke, Vantone and Oceanwide.

For private equity we worked with many of the industry's top ten GPs such as CDH, Fortune and IDG. There is actually a high level of overlap between the funds we selected and distributed and the funds invested by the National Social Security Fund of China. This is a reflection our selection philosophy and risk management are in line with leading institutional investors.

For A-Share investment funds, in 2011 we primarily focused on the preparation and application of our mutual fund distribution license and building out the Noah Upright team. We have researched and covered all the active mutual funds in the market, and in 2011 we have worked with leading product providers such as Aegon-Industrial, Guotai, GF Fund and Greenwoods to name a few.

Third, we wanted to continue investing in our OTC financial products database. And over the last 12 months, we have made IT upgrades and enriched the content. We have thought about ways to monetize this database, but have since decided to keep it as a proprietary database as it is a key competitive advantage in terms of product selection.

Fourth, we had aimed to strengthen our team by recruiting senior managers to improve our management capabilities. Personally, I am quite pleased that we made key hires such as Ms. Frances Chia-Yue Chang, a pioneer in Asia's financial industry with over 20 years of experience as CEO of Noah Upright, our mutual funds business.

Mr. Harry Tsai, another finance veteran with experience managing large financial services companies, as Chief Operating Officer, and Mr. Li Tan, former investment director of Carnegie Foundation as one of our funds of funds partners.

Lastly, we wanted to further develop our funds of funds business. In the first half of 2011 we strengthened our funds of funds team and coverage of private equity funds in the market, as well as focused on enhancing our due diligence and investment process.

We commenced our fundraising late last year and due to bad market timing the fundraising results were below our expectations. However, in the first quarter of this year we are starting to see new opportunities emerging to raise funds of funds, for example a private equity secondary fund, and we're preparing to recommence fundraising.

Fourth quarter of 2011 was challenging as clients risk appetite declined and clients became more cautious with investments. Nonetheless we continue to engage our clients by distributing short-term cash management products. It can be said that when the market is difficult and clients are risk averse, we found the key to continue engaging with them. Short-term cash management products augment our product offerings.

Going forward, we expect this new product category to help us broaden overall interaction with clients and improve client loyalty, despite generating lower profitability due to shorter duration. However, we think it is important to distribute products that truly satisfy the needs of our clients. Additionally, we believe this type of product will help us penetrate enterprise clients with large cash management needs in the future.

In the fourth quarter, we spent a lot of time with our clients and employees listening to their needs as we believe it is particularly important to be with our clients when the markets is filled with challenges and uncertainties.

In December, we completed our annual client appreciation event where we had in depth conversations with over 1,200 people, including clients and their families. This helped us to become closer with our clients, and to better understand how we can improve the quality of our client services going forward. This year, we will upgrade our client loyalty program to differentiate service levels by tiers, as well as standardize quality of service.

In addition, we are in pilot testing for Noah's Apps, which clients can access on their iPhones, iPads, smartphones and portable devices. Going forward, our IT development will revolve around two needs; the needs of our clients and the needs of our relationship managers.

The last few weeks I hosted performance review and 2012 target settings with our branch managers, including the 20 new branch managers who joined us last year. They are all very passionate and have a lot of ideas and strategies on how to expand business in their local markets. From these discussions I have gained greater confidence in our 2012 goals.

Despite uncertainty in the macro environment we remain confident in the long term prospect of China's wealth management industry, as we are still at the early stages of development. We understand concerns in the marketplace over repayment of real estate trust products, and we are focused on risk management more than ever.

We have approximately RMB5.3 billion real estate trust products maturing this year. We are pleased to share with everyone that because we have been striving to work with high quality, top tier property developers we are confident that we can maintain our record of zero defaults. Nearly all of our real estate trust products have collateral and guarantees, and overall loan-to-asset ratio remains very low.

Furthermore, we have a comprehensive continuous product management system, where we monitor all outstanding products and provide timely updates to clients. Our risk management and product selection, as well as continuous product management and timely information disclosure remain our competitive edge, especially in winning clients' trust.

2012 will be a growth year for us in both in terms of revenue and net income. Let me first talk about branch network strategy. This year, we will focus on the profitability of our branches. For the first half of the year we will not open any new branches. However, we will continue to build our talent pool by training new branch managers at existing branches.

After being trained for three to six months, these trained branch managers will open new branches in the second half of the year. This will help to shorten the learning curve for new branch managers as well as reduce overhead costs. We plan to open around ten new branches in strategic locations in the second half of 2012.

Next, I would like to discuss our goals to achieve profit at every branch. We are already seeing results from the implementation of regional management of our branches and we will continue our efforts. By dedicating resources to the development of different regional markets we aim to deepen local market penetration. Also it enhances our internal connectivity between our branches to better share successful experience and know-how. Key functions such as product development, research and compliance will remain centralized at headquarters, to ensure consistency of quality and economy of scale.

This year we will also strive to make improvements to our internal management system. Our new COO, Harry, will be responsible for enhancing our management processes, as well as in ensuring efficiency of our operations as we scale up our business.

Last year we made significant investment in our platform, therefore we won't need to make any major additions to our back office. This allows us to increase operating leverage, and our goal is to increase front line to back office ratio to three to one over the next few years. In addition, we are focused on improving relationship manager productivity through better management and employee training.

Now, I would like to talk about our product strategies. First, we plan to be even more selective by focusing on quality rather than quantity of products. In the current environment, our scale and ability to fundraise give us more opportunity to work with top tier product providers on favorable terms.

Accordingly, we will continue to strategically cover leading product providers; those with influential brands, deep understanding of the China market and proven track record. As of now, we have already built our product pipeline up to the third quarter of this year. However, it is important to note that we will maintain flexibility in adjusting our product mix to address dynamic changes in client needs.

Second, we continue to be optimistic of the A-Share market -as the majority of A-Shares seem undervalued. And we believe the recently discussed market reforms are structurally positive for the equity markets.

Noah Upright, being amongst the first to be granted a mutual fund distribution license from the China Securities Regulatory Commission ("CSRC"), as well as the only one having physical branches throughout China, not only augments our product offerings, but strategically positions us to increase revenue contributions from A-Share related products. Last year we made significant investment in Noah Upright in preparation for the license application, and now Noah Upright has 60 employees at 14 offices throughout China.

Third through our Hong Kong subsidiary which is licensed by the Hong Kong Securities and Futures Commission, we will be able to cover more internationally recognized product providers and develop US dollar funds. This will allow us to further deepen relationships with our clients by helping them with global asset allocations.

We expect to gradually build up our US dollar product offering by first focusing on our expertise and experience, for example, establishing a China focused US dollar fund of funds or working with reputable domestic GPs whom we are familiar with to raise their US dollar funds.

Finally, I would like to provide an update on regulatory environment, which in my view is becoming more market oriented as I have mentioned several times previously. CSRC granting new mutual fund distribution licenses to non-bank financial companies clearly demonstrates gradual market liberalization. NDRC, the regulatory body for private equity, has recently defined qualified investors as those with minimum investment amount of RMB10 million.

As you may recall, several years ago our private equity product already had minimum investment amount of at least RMB10 million. To a certain extent, we feel our efforts have helped the development of the private equity industry in China. We are also encouraged by ex-China Banking Regulatory Commission Chairman, Liu Mingkang's recognition of our leading position, professionalism and compliance, last week at the Global Private Equity Conference in Beijing.

CBRC, the regulatory body for trust products, has also issued new rules for clients signing contracts in person. And through our technology infrastructure, we have fulfilled this requirement through video conferencing. We understand we're the only independent wealth management company who has this capability currently.

Last year has brought a lot of uncertainty and volatility to the macro environment, nonetheless, I am optimistic that we will continue to grow our business. When the market is challenging it is also an opportunity to surpass your competitor. 2012 is a year of opportunity.

I will now ask Tom to provide details of our financial and operating results.

Thank you, Madam Wang and, good morning, good evening, everyone. Before I comment on our fourth quarter results I would like to point out that our 2011 full year non-GAAP net income was US$26.1 million, which is on the high end of the guidance range. We continue to think that it's important for a listed company to provide its guidance range prudently.

As Madam Wang mentioned, fourth quarter was challenging. Our revenues were $14.4 million, essentially flat on a year-over-year basis. Risk aversion on the part of our clients as a result of challenging macroeconomic environment, including the European debt crisis, affected our revenues, as well as profitability.

Clients shifted to fixed income products. Out of $680 million worth of products distributed in the fourth quarter; 65% was from fixed income products -- certainly a higher percentage in terms of product mix in recent quarters, reflecting clients' needs for safety. Within fixed income, as Madam Wang mentioned, approximately 35% were three to six months short-term instruments, or bank bill acceptance.

These short-term instruments generated less commission revenues due to shorter duration, which in turn affected our revenue and profitability for the quarter. On the other hand, I would also point out that short-term products will help generate recurring revenues at maturity should we do a good job meeting and servicing clients' needs that is.

Recurring management fees represented a record 47.8% of total revenues. We continue to think that recurring revenues is an important aspect in terms of our revenue visibility and stability.

As we have said before, it does not appear that liquidity was a main issue on the part of clients, as some of the short-term products were two or three times oversubscribed. We had 937 active clients for the quarter, which is consistent with our strategy to enlarge our active client base; this is particularly true as Madam Wang mentioned earlier, in challenging market environment to be engaged in with our clients. For the year, almost 3,100 clients transacted through us, representing nearly 80% growth on a year-over-year basis.

Gross margin for the fourth quarter softened to 73.6% as base salaries of relationship managers representing a bigger percentage of our revenues, and thus dampening margins. We also opened six new branches and slightly increased the number of our relationship managers during the quarter.

Operating margin fourth quarter softened to 14.5% due to soft revenues for the quarter, as well as higher fixed costs associated with the platform expansions, our investments in 2011. Our SG&A costs on a quarter-over-quarter basis declined as we reversed some of the previously accrued year end incentive compensations, as performance this quarter did not meet internal targets.

Before I comment on our balance sheet, I would like to mention that we certainly do not think profitability for 2012 will be at the levels of fourth quarter. We have largely completed back office and a platform build out, as Madam Wang mentioned. Margins should improve as revenues improve, and the benefits of economy of scale start to be pronounced.

I think that our margins, at both gross margin and operating margin for full year 2011 will be more indicative of how we would achieve profitability for the year 2012.

Our balance sheet remains strong. There is nearly $160 million if you combine cash, short-term fixed income investment, and long term investments on our balance sheet, or on a per share basis nearly $3 of cash per ADS. Our receivable quality remains strong. We have collected most of all of the receivables as of the end of the third quarter balance sheet and we have no bad debt.

As part of our fourth quarter earnings release, we have also declared our first annual cash dividend payment. I would like to share with you our dividend policy going forward. Our dividend was set at 30% payout of our 2011 non-GAAP net income, which is equivalent to $0.14 per ADS.

In evaluating dividend payments, the Board carefully considered a number of factors; first to ensure that the Company has a strong and liquid balance sheet to ensure executions of our business strategies. Second, our asset-light business model which generates significant free cash flow every year. You could almost use our non-GAAP net income every year as a proxy for our free cash flow generation. And, third, our confidence in assessment of our business prospects and paying a dividend, and it would be a form of capital discipline for ourselves.

We understand that most investors buy our stock because of earnings growth and capital appreciation of our stock price, and we'll continue to deliver earnings growth. However, we believe that by paying a cash dividend we would also provide another source of return for our shareholders.

In balance, the Board believes that it's in the best interest of shareholders as it provides another form of return. And we fully understand the market would expect the future payouts to be sustained at least at current payout ratio.

Finally, I would like to comment on our guidance range for 2012. Number one, we are continuing our guidance practice, which is to provide guidance range on an annual basis, as our results can fluctuate on a quarterly basis, as we discussed previously. And, also, we'll provide guidance range on a non-GAAP net income basis. And we'll make adjustments to the range should business conditions so warrant during the year, which we did revise upward last year.

For 2012, the range of $30 million to $35 million non-GAAP net income reflects 15% to 34% growth respectively on a year-over-year basis. The growth reflects all of the strategic prerogatives Madam Wang just mentioned, our product strategy, our client strategy, our branch strategy as well as how we plan to upgrade our management infrastructure. Rest assured, we will continue to invest in our people, technology and to build a platform for sustainable growth going forward.

With that, that's the end of our prepared remarks, and we'll be happy to open up the phone for questions. Operator?

(Operator Instructions)

First question will come from Ella Ji of Oppenheimer. Please, go ahead.

Thank you. First of all, I'm wondering if you can comment on the market environment and the trend of your clients risk appetite that you are seeing in the first quarter of 2012.

(interpreted) So as mentioned, our last quarter -- fourth quarter of 2011 is a challenging market, we saw a lot of risk aversion from our clients. So as you will note our product mix -- most of our products were coming from fixed income products. Within the fixed income products, shorter-term cash management products contributed to a bulk of the fixed income products we distributed which generated lower one time commissions. So, in fact, fourth quarter was a difficult quarter for us.

And the first quarter we are seeing improvement in the overall business conditions. Our clients are starting to feel more certainty in forming their views on the economy direction. This is compared to a lot of uncertainty in the fourth quarter of last year. So overall, as of now we feel 2012 will be a neutral year in terms of clients' risk appetite.

So last quarter we also saw a lack of confidence due to European debt crisis, a lot of negative media reports about entrepreneurs becoming bankrupt in the Zhejiang area, particularly Wenzhou. So, there is an overall loss of confidence by investors.

However, we're starting to see improvements in this regard as well. Last night I attended a dinner hosted by one of our top Wenzhou clients who recently relocated to Shanghai. And I was quite surprised when I attended the dinner. There were more than ten tables of Wenzhou entrepreneurs attending, and many of them are existing clients.

Overall, from my conversation with these Wenzhou clients they certainly have a lot more confidence now than several months ago. And a lot of them actually are starting to change their investment strategy from being more speculative, to be more prudent and more rational. I guess this is also a reflection of the market becoming more mature and investors becoming more sophisticated as well.

Thank you. That's all very interesting.

(interpreted) And a lot of the clients I met last night were also very grateful because they had met us several years ago, and many of them have avoided the underground shark lending business, and they were able to preserve a lot of their capital. I should have been the one who paid for the bill last night, but our clients decided to treat me to dinner instead.

Ella, I would just add a comment on top of that. I think certainly the fourth quarter was challenging, but we are seeing stabilization of client confidence and risk appetite as Madam Wang mentioned. And second point I would make is that even during the fourth quarter, last quarter, 35% of our product mix was in large private equity instruments. So, in that area one of the keys in terms of successful products with clients was product design.

So if a product even in the private equity area was well designed, well understood and well communicated to clients even during the fourth quarter, there was still very significant demand. So I would not characterize fourth quarter as a total risk on/risk off quarter, even though it was challenging, but we are seeing stabilization in the current market environment, as Madam Wang mentioned.

And thank you, thank you. That's very helpful. So just by year-to-date, what type of products have you seen that are being most popular?

Ella, I would just be a little bit cautious on that because we are talking about fourth quarter results, but obviously we're cognizant of investors' needs in terms of the latest update on our market outlook for 2012. It's fairly balanced so far.

And obviously, we're still not quite through the quarter yet, but we are seeing reasonable progress on both fixed income and non-fixed income products right now. So, it is in a stabilization period compared to the fourth quarter. I think that's probably the qualitative assessment I could provide to you without talking specifically about the first quarter. I hope you would appreciate that.

Yes, sure. That's very helpful. And then my second question is about your number of relationship managers. I understand you will slow down in new branch opening in 2012. What about the relationship managers, will you also and slow down in that?

(interpreted) In terms of the growth of our relationship managers that will certainly not slow down because currently we mentioned we have 60 branches throughout China. And for these growing branches it's quite important for them to continue to recruit good talent. So, hiring good relationship managers continues to be a key priority for us.

But we'll focus more on hiring higher quality relationship managers. This year we have also increased the criteria for our qualified relationship manager with annual transaction volume of RMB60 million.

And, Ella, I would just add to that rest assured we'll continue to invest in our business. Please don't confuse that with our branch strategy. We do have a very well thought through hiring plan to increase our relationship managers in terms of numbers, not only in terms of numbers but also in terms of quality. So, as we close our comments we will continue to invest in our business.

Number two is that it's different from our branch strategy. So obviously we need to -- we opened almost 20 branches last year, and we believe it's important for us to have a period of digestion of the branches that we opened up last year before we commence our further branch openings, as Madam Wang talked about, in terms of focusing on branch profitability. And, third, our strategy is to have a lower risk profile, if you will, approach to opening up new branches having people trained first -- okay.

But the last point I would make on that is that the business plan currently calls for a continued increase of our front line staff, but as Madam Wang mentioned that our platform, our back office and middle office, which we have made significant investments last year, is essentially in place. So we do not envision significant increases of staff in middle and back office, and therefore help us to achieve that three-to-one operating ratio in the next few years. But rest assured we'll continue to invest in our people both in terms of number, quality as well as training.

Your next question --

Can we please have the next --?

Yes. Samuel Chen at JPMorgan. Please go ahead.

(spoken in Chinese)

For the benefit of the audience, I will first translate the question into English. Thank you for the good results -- for achieving good results again. In the fourth quarter we have saw a high percentage of the transaction value coming from fixed income products. Can you please provide some color on what type of products these are? Are they corporate loans, packaged as trust products?

Second, I would also like to have Tom provide or elaborate more on the 2012 guidance for the top of the range of $35 million. What are the key assumptions, for example, transaction value, product mix, et cetera? Thank you.

(interpreted) For the fixed income part that we distributed in the fourth quarter is very conservative. Mainly the underlying asset or collateral were listed share financing or banks bills receivables. They are very, very safe.

And I would just add to Sam's second question in terms of guidance for 2012, both from a transaction value standpoint and product mix standpoint, from a transaction value standpoint, obviously we're looking to target to increase significantly from the RMB22.6 billion that we did in 2011. And even the higher end of the range we believe has been sensitized given the internal budget targeting.

In terms of product mix, for budgeting purposes we have, as Madam Wang mentioned, we have a product pipeline filled through the end of the third quarter, but obviously it depends on clients' needs, and the product mix may fluctuate and be adjusted to better meet their client needs.

For forecasting purposes what we are assuming is a 50/50 balanced portfolio, which is essentially how we did if you look at the full year of 2011, despite the fluctuations quarter over quarter. Essentially, it was a 50/50 balance between fixed income and non-fixed income. But I want to emphasize again that doesn't necessarily mean that's the product pipeline we have even though we have it for the end of the third quarter, and it depends on how clients would need and meet the clients' needs.

(spoken in Chinese)

Sam's follow-up question is for these listed share financing and bank bills receivable fixed income products, I would assume that they are shorter duration. So would they also have a smaller -- or generate smaller one-time commission? Madam Wang's response is --

(interpreted) Certainly, these type of products are shorter in duration and as a result generate a smaller one-time commission for us, but I think it's quite important that at the same time considering profitability, it is also even more important to satisfy the needs of our clients. Short-term cash management products help us engage our clients more broadly and also improve client loyalty.

Also we found out that now we have expanded our product offerings to cover cash management products, we are now better able to serve enterprise clients. A lot of enterprises have came to us and said that they have a lot of cash management needs.

But I would like to point out that these shorter term cash management products are not incorporated or factored in our guidance that we have provided because -- and these obviously have lower profitability than the products that we have historically distributed.

And, Sam, I would just add some color to it. As we tried to articulate in our prepared remarks, the short-term bills, the average duration for the bills portion was only five months. This is on a weighted average basis. So obviously, the commission rate will be lower as well.

And, secondly, in -- this will be a form of new demand, if we do a good job serving these clients because these products do come mature within that three to six month horizon. And that will provide another source of recurring client demand.

And, lastly, I just want to reemphasize again our product mix would have to go and adjust according to the environment and accommodate clients' needs. And it's very important for it to be actively engaged with our clientele to deepen the conversation with our clients.

Next question will come from Michael Li of Merrill Lynch. Please go ahead.

(spoken in Chinese)

I will first translate the question into English. Congratulations on the good results. And my questions are mainly centered around Noah Upright. We understand Noah Upright currently has 60 employees and 14 offices throughout China. Can you further explain whether these 14 offices are part of the 60 branches that that Noah has currently or, are they separate offices or branches?

And, second, for Noah Upright costs, how are they recorded currently? And, lastly, what is your expectation in terms of revenue or transaction value contributions on Noah Upright for the year 2012?

(interpreted) Good question. The 14 offices that Noah Upright has they're in the same cities that Noah is currently in, but these offices are separate and run independently as required by CSRC. I would like to point out that these costs are already embedded into our 2011 results.

In terms of our expectation for Noah Upright in 2012, we plan or we expect that Noah Upright equity product will contribute to around 20% of our overall business, but to be on a conservative basis we have not added this in again in our guidance range that we have provided to the market.

In line with our previous practices, we would like to be conservative in terms of the guidance that we communicate with the market. Considering that Noah Upright is a new business for us and also this the first time CSRC has issued new licenses to non-bank financials -- so once CSRC officially allows for client account opening we will strengthen and put a lot of effort in expanding the businesses for Noah Upright.

Last year we have done obviously a lot of preparation for the application process. At the same time, we have spent a lot of effort in researching on the needs of our existing client base in terms of mutual funds. Over 70% of our existing clients have expressed that they are willing and want to buy mutual funds through Noah Upright.

I would just add some color of terms of the earlier comment Madam Wang made. Absolutely all of the costs, investments both in terms of people, and branch infrastructure have been captured in our P&L, number one in -- historically.

And number two is that the range that we have provided with -- up around of $35 million fully incorporates the investments or continued investments in the mutual fund business, but as we tried to say earlier we have not assumed any contribution from a revenue standpoint. So, we hope this would be a prudent range as we execute our strategies, especially also including the mutual fund side.

(spoken in Chinese)

Follow up question is, can you give us some color on the pricing for the mutual fund distribution business?

(interpreted) Very good question. I think out of the four companies who have received the mutual fund distribution license, excluding ourselves, three other companies are mainly online providers. Their strategy is primarily to provide low cost through an online platform.

We are the only company that currently has off line services. So our strategy will revolve around our existing client base, and we will help our clients with segregated accounts. And we believe and this will provide premium services and also help us with pricing flexibility and bargaining power. So the minimum starts for segregated accounts will be at minimum of RMB1 million.

So, from the MOUs in discussions we have with some of the mutual fund companies in terms of building up pipeline products for equity products, we have been able to maintain similar pricing to the products we have distributed previously.

And I'll add to that. It's a form of upfront commission and most likely also a trailer fee -- a management fee as well, but we'll be able to quantify that as we become further ahead in the mutual fund business.

Your next question will come from Hans Fan at Standard Chartered. Please go ahead.

(spoken in Chinese)

First, I would like to translate the question into English. And congratulations, to management team at Noah. My first question is on the recently published NDRC requirement for qualified investors, or LP of private equity funds. Minimum investment threshold was raised to RMB10 million. How does this impact Noah's key distribution business? Madam Wang's response is --

(interpreted) Actually, we're quite happy to see this new regulatory development. In fact, since we started doing private equity distribution business back in 2008, the minimum investment hurdle has always been RMB10 million for us. In fact, we had suggested this type of definition to the regulators.

So, I think, this actually does -- clearly does not pose any hurdle to us, and it certainly has raised the barrier of entry for other competitors in this space because I understand some banks offer private equity products starting at RMB1 million, RMB3 million. So, I guess we're probably one of the few if not the only player in the private equity distribution business that's wholly compliant with this requirement.

The second question from Hans is, can you comment on the fund of fund business last year? What was the total amount raised, and provide and some color on that?

That's right. I'll answer that question first. The total funds of funds that we raised was RMB400 million last year, as we said in the prepared remarks section. If you look at our major strategic prerogatives, that was probably the main area where we did not execute as successfully, but obviously we are seeing opportunities in this marketplace and fund of funds is a strategic area for Noah, and we'll make a concerted effort on that front.

And I also want to add some comment on private equity business in terms of qualified investors. We continue to think that private equity will play an important role in capital formation in China, as well as asset allocation for our clients, but our strategy is going to be very selective as Madam Wang pointed out.

We'll focus on the first tier product providers; those that have an understanding of China market and those have with a track record in China. And these are the product selection criteria we will use for 2012.

(interpreted) And I would also like to add that that the overall assets under management for our fund of funds business is first RMB2 billion. So, this is probably the largest fund of funds, public market fund of funds business in China.

Next question will come from Xiao Liu of CICC. Please go ahead.

(spoken in Chinese)

The question is from Xiao Liu of CICC. The questions -- the first question is Madam Wang mentioned that the mutual distribution license we expect or plan for the business to be about 20% of our total transaction value. So, is this clear or something for us to reference the total transaction value we distributed last year, which is around US$3.5 billion and times 20%? That's the first question.

The second question is you mentioned that guidance range provided to the market US$30 million to US$35 million does not include contribution from the mutual fund distribution business. Can you provide, if possible, what the range would look like if you included contributions from the mutual fund distribution business? Thank you.

First, Madam Wang just wanted to clarify the total transaction value for 2011 is US$3.5 billion, so about RMB22 billion. So if we use 20% of that target is roughly about RMB5 billion mutual fund products distributed for 2012. Certainly that is our goal.

But the reason why we did not include this revenue contribution in our guidance range is because we view that Noah Upright is still certainly in an investment stage; it will need to open more branches, invest in more people. So we wanted to be more reasonable in terms of what we provide to you, the Street, including or incorporating the cost, but have not included any revenue contribution.

I would just add how we provide guidance range -- if you look at how we guided the Street at this time last year and how we adjusted upward, our philosophy is to be able to guide a range that we have high confidence of delivering. So for Noah Upright, absolutely agree with earlier comments. It is still in an investment phase.

I want to emphasize again that the costs, investments have been baked into our guidance range, but we don't believe that given the limited track record, it's still in an initial stage of the business, to include the revenue contribution and use that as a portion of our guidance for investors.

Like I said earlier, our policy is to provide a range that we can deliver with confidence. And should conditions warrant on a quarter-over-quarter basis we will adjust accordingly. So I hope you would understand that for not including that into our guidance range.

Any just last questions, operator?

There are no further questions in the telephones. I'll hand back to our speakers for closing remarks.

Thank you all for your continued interest in Noah. And we look forward to speaking to you and meeting you in person in the coming weeks. Thank you.

Thank you, ladies and gentlemen. That will conclude the call for today. We appreciate you joining us, and you may now disconnect when ready.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring their Event.