Noah Holdings Ltd (NOAH) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to Noah Holdings Limited First Quarter 2015 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

After the close of the U.S. market on Monday, Noah issued a press release announcing its first quarter 2015 financial results, which is available on the company's IR website at noahwm.investorroom.com. This call is also being webcast and will be available for replay purposes on the company's website.

I would like to call your attention to the safe harbor statements 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 may 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 statement as a result of the new information, future events or otherwise, except as required under the applicable law. The results announced today are unaudited and subject to adjustments in connection with the completion of the company's audit. Additionally, certain non-GAAP measures will be issued 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 hand the call over to Ms. Jingbo Wang, Chairman and CEO of Noah. She will be speaking in Chinese and her remarks will be translated into English. Thank you, and please go ahead.

[Chinese]

Kenny Lam;President^ [Chinese] What we'll do is -- we'll do -- Thank you, operator, and thank you, all, for joining us. With me today are Mr. Kenny Lam, Noah's Group President; and Ms. Ching Tao, Noah's CFO. Mr. Lam will start by providing a brief overview of our financial highlights for the first quarter of 2015 and will walk you through the performance of our core wealth and asset management businesses. After that, I will provide an update on the progress we are making to develop a global open architecture product platform, as well as progress with our new Internet finance business. I will also review our strategic initiatives to establish an integrated financial services platform to support the sustainable growth of the company. Lastly, Ching will provide further insight into our financials and reiterate our 2015 guidance. We will be happy to take any questions at the end of our prepared remarks.

Now I'll turn the call over to Mr. Lam.

Thank you, Chairman Wang. What we'll do is we'll do mine and Chairman Wang's both in Chinese and English and then Tao Ching's section in the Q&A will mostly be in English.

Chinese Thank you, Chairman Wang. We are pleased to have delivered strong results in the first quarter of 2015, with top and bottom lines both in line of our expectations. Net revenues were 19 -- were USD 71.8 million, a 43% increase from the corresponding period in 2014 and a 14% increase from the fourth quarter of 2014. On the bottom line, non-GAAP net income was USD 22.5 million, and a 24% increase from the corresponding period in 2014 and a 45% increase from the fourth quarter of 2014.

In terms of our core businesses, we distributed $3.9 billion of wealth management products during the first quarter, representing a 64% increase year-over-year and 108% increase quarter-over-quarter.

Our total registered clients and total active client base also increased at an encouraging rate. Total registered clients as of the end of Q1 increased by 35% year-over-year to 74,895, and total active clients reached 5,275, a 62% increase from the corresponding period in 2014.

Chinese In the first quarter, there was a substantial change in our product mix. The transaction value of PE and BC product distributed increased by 108% compared with the same period of the prior year, and a 139% compared to the last quarter. The secondary market product distributed increased by 622% year-over-year and 97% quarter-over-quarter. We started distribution of asset allocation related products since the second quarter of 2014.

In the first quarter of 2015, asset allocation related products increased by 1,312% compared with the last quarter. Our client's asset allocation to international asset classes increased by 761% compared with the same period of the prior year and 2,062% compared to the last quarter. Over the same period, the proportion of fixed income products with real estate as underlying assets dropped to 42% of the total transaction value. Due to the changes in product mix, our revenue model has gradually transitioned from onetime commission to recurring service fees and performance-based or carried income. I believe this fully reflects our ability to understand and evolve quickly with the market and our team's execution for the growth.

Chinese One of the drivers of our Wealth Management business is our national network of relationship managers. In the first quarter, we increased our market penetration as our network grew to 104 offices covering 64 cities, up 94 offices covering 63 cities from the end of last year. Our relationship managers also increased from 779 to 834 over the same period. Our team of top-performing relationship managers continues to expand and accounts for 34% of total relationship managers.

The fact that our revenue grew faster than the relationship manager's number and branch offices, reflects improvements in the productivity of our relationship managers and the success of our initiatives to expand off-line coverage while simultaneously developing the Internet finance business.

In the first quarter, the productivity of our relationship managers increased by 26% compared to a year ago. The productivity of our top-performing relationship managers is 7.8x the productivity of our other relationship managers. The turnover rate of our relationship manager is 7.5% in the first quarter, 32% lower than the corresponding period. Turnover rate for our top-performing RM is close to 0, the best -- the lowest in the industry.

Chinese Our mid- to long-term strategy for the wealth management business is focused on 2 key areas: First, leveraging our well -- new family office and discretionary portfolio management services to deepen customer relationships and significantly enhance the capabilities of our relationship managers; second, significantly improving the transaction platform for our customers and relationship managers so that the door opens faster and convenient. Our efforts to our family office and discretionary portfolio management services are also progressing very well. The average transaction value for these current client relationships is RMB 53 million equivalent to $8.5 million. We're very optimistic about the outlook for discretionary portfolio management for family office clients. We have already set up commitment back-office processes and investment capacity to support growth in this area. We're also developing a next-generation O2O platform for our wealth management business. This will enable customers and relationship managers to interact on a common platform much more simply, efficiently and safely.

Chinese We continue to enhance our engagement with our clients via Noah's Education subsidiary, ENOC Education. By selecting and customizing global high-end education, we formed a comprehensive international curriculum. Up to the end of first quarter of 2015 over 1,200 clients attended courses in ENOC Education. Through these courses, our clients understand the values and investment philosophies of Noah better.

Chinese Now I'd like to provide an update on Gopher Asset Management. Established as a multi-boutique investment firm, Gopher Asset has continually building its investment in asset management capabilities. It is now one of the most prominent players in terms of venture capital and private equity fund of funds in China. Its brand is widely recognized in the market. As of March 31, 2015, Gopher Asset had USD 9.4 million assets under management, a 54% increase in the first quarter of 2014 and 19% increase from the end of 2014. In terms of asset categories, real estate funds and real estate fund of funds accounted for $5.6 billion, Private Equity fund of funds accounted for $2.4 billion and secondary market fund of funds accounted for $0.7 billion and other fund of funds accounted for another $0.7 billion. Gopher Asset Management specializes in private equity and venture capital fund of funds, real estate fund of funds, hedge funds and the credit products denominated in both renminbi and U.S. dollars. It is worth highlighting that these fund products have generated very strong investment returns. This is a reflection of our rigorous approach to screening and selecting fund managers and strong management skills.

Chinese With our improvement in talent coordination, our fund of funds strategy is developing into manager of manager of funds, as well as co-investment and direct investment in some projects. We're very confident that Gopher's asset under management will continue to increase.

Chinese The transformation of our risk management team has been largely completed. This team is already playing a key role in managing our product flow and operational risk. It is worth mentioning that due to the ongoing efforts of our risk management team and state judicial organizations, the principal of old clients involved in the [Jinpai] case has been recovered and distributed. We're now unable to disclose further details while the litigation is still ongoing.

Chinese Now I would turn the call to Chairman Wang to give an update on the development of our global open product platform, progress in the internet finance and other strategic initiatives.

[Chinese] Thank you, Kenny. Noah was founded with the vision of becoming a wealth management company with outstanding asset management capabilities that serves Chinese people all over the world. Over the past few years, this vision has inspired us to continuously meet customer needs and constantly expand and grow. Thanks to Kenny joining Noah, I have a lot more time and energy to focus on building Noah's global open architecture product platform and developing our Internet finance platform. Our product center, which is positioned as a global open architecture product platform, covers 8 regions across China, as well as global markets through our team in Hong Kong. Currently, we have over 50 colleagues in our Hong Kong team. At the same time, we are also focused on expanding our customer services by building professional product subsidiaries. For example, leveraging a specialized loan company to provide customers with collateralized loans to meet short-term liquidity needs, or using an insurance brokerage to meet the insurance needs of our customers, or using overseas trust and overseas insurance brokers to provide trust and insurance services to our family office clients.

Chinese In the first quarter, the local government markets changed very quickly. We see the trend of previous alternative products transitioning into standardized wealth management products.

Regarding secondly market products, we started to transition from a boutique-select model to a platform model. First, the research team and product team create a pool of products and provide our customers with a platform to choose secondary market product they prefer. At the same time, our research department will closely monitor, investigate and report on managers of large funds on a regular basis. Based on our internal research, we would choose some funds for large-scale distribution.

The new platform plus our new screening model will effectively improve our coverage and enhance our risk control. We are also increasingly focused on risk. Currently, there are many irrational elements in the market. We believe that wealth management should start with products and then consider asset allocation. Hence, we are striving to promote asset allocation on our service platform.

In the first quarter of 2015, asset allocation products increased by 1,312% quarter-over-quarter. We believe that as the market rationalizes, particularly when the market declines, these type of products will protect customers' wealth and receive greater recognition.

Chinese At the same time, we understand that real estate-related products will continue to remain a component of our client's asset allocation. To meet this demand, we will collaborate with large, high-quality real estate developers and enhance our risk management and asset investment capabilities. We will embrace new real estate finance models, which we have developed through the integration of the real estate and Internet businesses, as well as the continuous innovation of our sales model. This will enable us to meet the fixed income product needs of our customers.

Chinese The current strong stock market drives the IPO market. Noah launched the VCP, fund-to-fund business in 2007, from private equity funds to developing Gopher Assets funds of funds. As of March 31, 2015, we distributed and managed over $9 billion of private equity products. Due to the impressive performance of these funds, we believe that customer satisfaction will continue to increase. This will enhance Noah's leadership in the [BCNPE] space, which in turn will boost demand for our secondary market and private equity products and further improve customer loyalty.

Chinese Last quarter, we noticed that a growing proportion of high net worth clients are increasing their overseas asset allocation. Noah Hong Kong's product platform provides Chinese clients with many opportunities to select outstanding overseas assets. In the first quarter, Noah Hong Kong distributed products with an aggregate value of $500 million, which is even more than the total products distributed in the full year 2014. The total number of registered clients increased from 802 in 2014 to 19 -- 1,960 in the first quarter of 2015, representing an increase of 144%.

As of the end of the quarter, overseas cumulative AUM reached more than USD 1 billion, an increase of 508% year-over-year. The ability of our overseas asset management team also continues to improve. In the first quarter, overseas funds of funds, including funds from well-renowned asset management companies such as Blackstone, Carlyle and KKR. At the same time, we will also be partnering with leading international private banks and fund managers to leverage their experience, train our relationship managers and provide products and support to our clients.

Chinese Aside from investment products, [Noah Glory] Insurance Agency's team continues to develop new innovative products. We already have completed our product lines, which includes high-end medical insurance, general accident insurance, aviation accident insurance, critical illness insurance and whole life insurance. Insurance has already become a standard consideration to Noah's high-end clients. By the end of the first quarter, we have sold over 10,000 insurance policies. By establishing a global open architecture product platform and understanding the trends in development facing the asset management industry, we will maintain our ability to continuously innovate and gain deep industry insights.

Chinese Now I'll share an update on our developments in the Internet finance space during the first quarter. Noah's Yuan Gong Bao platform, our online private banking platform targeting white-collar professionals, is rapidly developing. In the first quarter, the transaction value on the platform reached $347 million, this is a 57% increase from the $228 million of products that were distributed in the full year 2014. The average transaction value per client was about USD 17,000, and the proportion of repeat customers was 52%. Going forward, we plan to combine our VIP lending and Yuan Gong Bao platforms. This will help us to bring financial products, collateralized loans and independent customer transfers online, thereby forming a closed loop for online transactions.

Chinese Noah's team has rich Internet experience. By combining the advantages of Noah's financial products in the community of employees from the platform, Yuan Gong Bao has rapidly gained recognition in the Internet finance market.

Macquarie Capital China completed the capital injection to this platform in the first quarter. The capital from this investment will be used to improve the development of Yuan Gong Bao and raised funds, insurance and other integrated financial products have been gradually released online. Yuan Gong Bao is positioned as the private bank of white-collar professionals and the average investment per person is over RMB 100,000. We believe that Yuan Gong Bao has the potential to become the platform of choice for white-collar investors. According to a recent study by Wong Dai on the monthly transaction volume of similar platforms, Yuan Gong Bao is already the third ranked platform in China. Due to Yuan Gong Bao's superior financial product and good user experience, it has been extremely well received and it has been promoted at many well-known Chinese companies. In the first quarter, enterprise clients increased by 56%.

Chinese Lastly, I would like to briefly touch on the overall financial environment and regulatory changes. The wealth management and asset management industries are gaining more and more attention from the government and regulators. As China's economy transitions, financial liberalization will play an important role in efficient allocation of capital. This is a good opportunity for Noah to develop, but it also means that we need to implement stricter standards and risk control and compliance. This year, the Chinese government support of Internet finance innovation is even clearer. We believe that with the ongoing standardization of regulatory oversight, we will be able to demonstrate our advantages in product selection, asset management, rigorous risk controls and back-office operations. We will also continue to drive our efforts in investor education to help our customers understand the nature and risks of financial products.

Chinese Noah is a learning organization. We're still early in the process of building our company. In the new Internet era, we strive to integrate learning and progress so that we can drive the evolution of our business model. Our core strengths and values will enable us to continually optimize our business so that our customers and our shareholders can see and benefit from our growth.

Chinese Now I will turn the call over to our CFO, Ching Tao, to review our financials. Thank you.

Ching Tao;Chief Financial Officer^ Thank you, Kenny, and Wang and hello, everyone. To make best use of everyone's time, rather than reading through the financials that are disclosed in our release, I will give a high-level overview of our Q1 results and highlight a few areas before we go into the Q&A.

We're pleased to have started the year with a steady top and bottom line performance. Q1 net revenues increased 43% year-over-year to $71.8 million and Q1 non-GAAP net income grew 24% year-over-year to $22.5 million, both largely in line with management's expectations. We distributed approximately $3.9 billion worth of wealth management products during the quarter, representing a 64% increase year-over-year and continued to diversify our product mix, as Kenny mentioned earlier in the call. You can find a breakdown of the operating metrics of our wealth management business in a table at the back of our earnings release.

The effective commission rate for the first quarter of 2015 was 0.82% compared to 0.77% in the same period last year, and 1.08% in the fourth quarter of 2014. The sequential reduction in the effective commission rate was primarily due to changes in the product mix. Some fluctuation in the quarterly commission rate is also related to the volatility of the underlying markets and it's still within a very healthy range.

Recurring revenues was $34.7 million, accounting for 51% of net revenues in Q1 2015 compared to $30.9 million in Q1 of 2014 or 65% of net revenues. The decrease in recurring revenues as a percentage of total was primarily due to the increase of onetime commission revenue along with a significant increase in total transaction value quarter-over-quarter and an increase of performance-based income as well as revenues from other -- the -- from the Internet finance business. While we believe this trend of steady growth in management fees has not changed, we expect recurring revenues to make up roughly 50% of net revenues on an ongoing basis and see recurring revenues as an important tool to ensure revenue visibility and stability.

We're pleased to see continued momentum in our Internet finance business where first quarter revenues reached $1.5 million compared to $0.4 million in Q1 of 2014. While we're still in the investment phase of this business segment, we're very confident about the outlook and believe it will be an integral component of our comprehensive platform and service offering and an important growth driver for Noah in the future. We also received $4.2 million in performance-based income during the first quarter of 2015 related to secondary market products. With the continuously increasing secondary market product and private equity products, we expect performance-based income will have a bigger impact in our total revenue in the future.

And now on to profitability. Our operating margin in Q1 was 31.7% compared to 41.2% a year ago. The decline is primarily attributable to the fact that no government subsidies were received in the first quarter of 2015, and also due to our investments in building up our Internet finance business in other key areas. We recognize government subsidies upon the receipt or all conditions of the receipt have been satisfied, so we typically experience some quarter-to-quarter volatility, but on a year-over-year basis these tend to be smoothed out. Non-GAAP net margin was 31.3% compared to 36.0% a year ago.

Our balance sheet remains very healthy. At the end of Q1, we had approximately $379 million in cash, short-term investments and long-term investments, an increase of about $65 million from the previous quarter. We used approximately $8 million in operating cash flow in the first quarter, primarily to pay annual bonuses in the first quarter. Cash inflow from financing activities for the first quarter was $71.9 million, mainly due to the issuance of an $80 million convertible note in February. Accounts receivable turnover of about 61 days is within the reasonable range of our AR turnover days.

Finally, I would like to reiterate our net profit guidance for 2015. We expect non-GAAP net income to be between USD 90 million to USD 95 million for the full year of 2014, the midpoint of this range represents year-over-year growth of about 20%. This growth rate reflects the strong fundamental and steady profitability in our core businesses including wealth and asset management on the one hand and also continued investments in our new businesses, primarily in Internet finance on the other.

With that, Chairman Wang, Kenny and I would be happy to take any questions. Operator?

(Operator Instructions) Your first question comes from Ellen Du with CICC.

[Chinese]

Kenny Lam;President^ [Chinese] Just a quick translation of the question. I think the first question's really around the mid and back office and how we are intending to invest in the mid and back office and what the impact is likely going to be on the financials. I'll answer the strategy on the mid and back office. And then the impact on the financial side, I'll ask Tao Ching to answer. The second set of questions really around our product structure which is really related to 2 sets of questions. One is around the mix between international and our domestic asset allocation, and second is really on our asset allocation products, what the impact is likely going to be going forward. Within the second set of questions, I think there's a set of questions around our carried interest and our performance-based fee based on secondary market. I think I will first answer the first set of questions and I'll let Wang Jingbo answer the second set of questions. Chinese And then I'm going to translate into English. Chinese Let me just kind of answer the questions first, also in English as well. So we're basically focusing on a major transformation of our systems at this year. We're focusing on 2 main areas. One is actually on the core system transformation where we're changing our ERP system as well as our functional system like the CRM, HR and finance. And that will actually have an impact not only for this year, but we also expect the system to be helpful for our growth in the next 3 to 5 years. The second part of our office and operation -- on operation transformation is that we're now turning into a group management matrix organization, whereby the group will now basically -- we'll now basically set our policies for the main businesses, the wealth management, the asset management and the Internet finance business. So each of the businesses, wealth management, asset management and Internet finance, will basically develop their own capabilities in each function, and that way, we'll be a lot more efficient as a group and we'll also develop a lot more capability at the business level. Chinese

[Chinese]

Kenny Lam;President^ Okay. Well, let me translate -- summarize what Wang -- what Chairman Wang has actually just said. I think on Gopher Asset Management, we're still progressing towards the multi-boutique asset management firm. Most of our asset classes are still focusing on funds. I think particularly for VCP we've actually developed quite a leading brand in China, where early positioning would now gain a lot of client loyalty. And on that particular asset class, we will do a lot of co-investment, direct investment; prior to that asset class, we'd do mostly fund of funds. Overseas platform, we expect to do currently around -- like you said around 10%. I think we're expecting it to be around 20%, 30% of the split within our total asset allocation. Particularly Chairman Wang mentioned in real estate, we still expect it to be a substantial proportion of our asset management, asset allocation. We expect that within real estate, we -- the -- we currently have a lot more that is share-based than debt base. And so the way that we'd screen would actually improve substantially, so we expect this to still continue to grow despite the volatility in the market. We believe the asset class is actually a -- based on our risk management approach it's still a very good asset class. The approach is different but we believe it's still a good asset class.

[Chinese]

Kenny Lam;President^ [Chinese] So basically in our financial projection, we never forecast carry interest. But now -- our revenue now is shifting away from onetime commission to more that is more carried income and performance -- carried income as well as recurring management fee. And so this shift will reflect our business model, will also make our revenue a lot more stable. As I've said, I think the carried income is something that we don't forecast in our projection. We tend to be a lot more conservative.

Ching Tao;Chief Financial Officer^ And just to translate, for the IT expenditures, we're expecting to spend anywhere from RMB 80 million to maybe even RMB 100 million on our IT systems this year. As Kenny mentioned, to improve the ERP, CRM, HR and for example, we're upgrading to Oracle for the finance system. Renminbi.

Kenny Lam;President^ In renminbi, so what Tao Ching mentioned was in renminbi, so around RMB 80 million to RMB 100 million which is around USD 15 million. And lastly, I would like to extend -- we can extend the call a bit. I know that we are going to -- the businesses right now is quite broad and so we could extend the call to take more questions.

(Operator Instructions) Your next question, Ella Ji from Oppenheimer.

[Chinese] My second question is relating to your overall spending level in addition to the IT related spending, especially the sales and marketing, as well as headcount. What is your plan for the full year? And also, especially regarding the Internet finance segment, I noticed that the compensation spending is slightly down quarter-over-quarter. I wonder if you can also explain that.

[Chinese]

Kenny Lam;President^ So let me just translate what Chairman Wang actually said. I think that we are in select products moving to what we call a platform of choice, where we would screen in public mutual fund type products, secondary market products to be put on a platform to be sold. Now within that, we will still select and recommend certain types of products for our clients. This is how we will be approaching it for the non-alternative products. For alternative products, we maintain our approach of highly selective product approach, whereby we will spend a lot of time selecting and screening the managers and putting things on the shelf for our clients. So this is the broad approach. The idea behind is that we believe that the client needs are revolving, and therefore, there's a stronger need for us to put more products in the current market, in the mutual fund areas, where -- that we want to make available on the platform. But in alternative products, we maintain our selection approach. It will still be highly selected by our product team. Let me just answer your second question, which is really around investments in people and marketing expenses. We expect that we will continue to invest in people this year, whereby we will increase our headcount still substantially. We believe that across businesses, we're still growing at around anywhere between 20% to 40%. In this market, talent is the most important thing and therefore, with our brand name and our position to market, we've been able to attract good talent. We want to maintain that trajectory this year so we'll continue to invest in growing our employee base. And therefore, the people cost will continue to rise notably faster than previous years, that's one. Secondly, in terms of marketing sales, we are still very selective in how we spend our money in terms of marketing. Currently, Noah still maintains the principal that we want to be selective in terms of how we advertise and how we connect with our clients. It is still a very high-end client base business. And therefore, we're not going to do broad-based -- broad-media advertising, we're still very selective. At the same time, we want to be a lot more targeted. We do want to spend money in the right medium. I'll let Tao Ching answer a bit about the cost.

Ching Tao;Chief Financial Officer^ [Chinese]

Kenny Lam;President^ We're actually combining VIP lending and the Yuan Gong Bao platform together and that actually helps them to be a lot more effective in finance. I know we're now approaching the end of our official time, but we can extend the call for another 15 minutes to take more questions.

Ching Tao;Chief Financial Officer^ Okay. Sorry, let me just translate my answer just now into English for those of you who don't understand Chinese. So I was just saying a couple of things. First of all, with respect to selling and general and administrative expenses, there's been an increase by segment in the Internet finance segment mainly because we're still building scale there and we find that to be appropriate. Overall, we expect our operating margins to continue to suffer a little bit as we continue to build scale across all of our businesses. Also, I was mentioning for headcount, 2013 year-end headcount was approximately 1,300 employees. 2014 year end was approximately 1,900 employees. As of the end of March, we're a tad over 2,000 employees, about 2,020 to 2,025 or so. So as Kenny mentioned, we're going to continue to invest in talent and the team, but we won't be doubling every 2 years like in the past. And then lastly, on Ella's question regarding the drop in employee-related expenses for the Internet finance segment, at the end of last year, we combined several Internet finance teams into one larger team. So it was the Yuan Gong Bao team, the VIP lending team and also the micro-lending business, and so on a segment basis, the Internet finance team has shrunk headcount a little bit.

And with that, I think we still have time to take a few more questions.

Yes, we have one more question from [Julie Lu] with Panther China Funds.

[Chinese]

Kenny Lam;President^ [Chinese] The first question is really around when would -- when are we going to stop investing in IT or how long would the investment be on IT fund? The second question is really around incentives for our key management and how that's going to help on the long-term growth of the business. Chinese So in terms of IT systems, we expect that we will finish the implementation of a core transfer -- transaction system by the end of the year, and then some of the core functional systems to be also completed by the end of the year or first quarter 2016. So we expect that the core transformation and the related investments would actually be done by end of the year or first quarter of 2016. As I said, I think the whole point is to make sure that we have the proper systems to help us for the next 3 to 5 years because we expect growth to be continuous in the next 3 to 5 years.

[Chinese]

Kenny Lam;President^ So let me just summarize what Chairman Wang said in terms of compensation for our senior management. Basically, there are 3 components. One is a cash-based bonus; one is a share incentive scheme; and the third is a employee fund that we invest in our new businesses. So on the first part on cash-based on the base salary and bonus, we actually mark-to-market and look at the corresponding market compensation to make sure that our sectors are actually paid based on market rate. So that's the cash proportion. On top of that, we also incentivize based on share and options, for executives. Last year, I think we did about 80 to 90 executives actually received share-based compensation. That is the second component. The third component we actually have created an employee fund that invest in our new businesses. And these funds are actually open to our executives at relatively low share price for many of our businesses. For example, Yuan Gong Bao and eventually we also have other subsidiaries that are open to this fund.

[Chinese]

Kenny Lam;President^ So the best incentive is actually not monetary. The best incentive is actually the culture of the firm, as well as the belief that we're still at the very beginning of our growth of the business. So that's the -- that's how we've been driving the stability of our management.

Ching Tao;Chief Financial Officer^ [Chinese] So just to summarize again for IT expenditures between expenses and also CapEx, which we will capitalize over a period of time, we expect to invest close to RMB 100 million in the next 15 months or so to upgrade our systems.

Your next question comes from [David Lee with DM Capital].

[Chinese]

Kenny Lam;President^ The question was actually, given the growth of the Asian market, our performance fee carried interest in the A and secondary products as well as in P products is actually performing very well. If the market drops substantially, if there is a -- the question was a catastrophic situation in our Asian market, what would the impact be on the business. I think that one we'll let Chairman Wang answer.

[Chinese]

Kenny Lam;President^ So let me just quickly summarize what Chairman Wang said. I think, overall, we are probably the only wealth manager in China to experience a few product market volatility, right? We started in 2004. In '05, the market was around 998 points. I think it grew to 6,000 points in '07 and dropped back to 1,000 to 600 points. So we've actually been through a few cycles within our history in the last 11 years. I think 2 main things that we maintain. One is we are -- we maintain a very sane and clear approach to asset allocation. Our aim is to ensure to protect our client assets while we grow the assets. So therefore -- in many products, for example, secondary market, we may not be the best performing in the market, but we also expected, let's say in 5 years' time, we help the client grow 5% per year while clients investing in other funds may actually lose their money completely. In [BCPE], for example, we actually are heavily selecting our managers. We've actually grown in our skill as well as our assurance in the market and therefore, we're able to actually select managers quite early. So the first point we want to make is that we've actually seen the cycles. And the second point is that we've actually been able to maintain a very sane approach through Chairman Wang's leadership. The last point we want to make is that we actually spent a lot of time in client education. I think this point was briefly made in my remarks. [ENOC] Education in Noah's subsidiary is focused just on our clients' education in investment. So we've actually have strategic alliance with Stanford, Wharton and Yale and all of these programs are tailored towards investment philosophies and understanding of how to invest. This is also a culture of Noah, whereby we spend a lot of time educating our clients to ensure that they understand the risk they're taking and how to allocate assets. And that's why last year, we have about 1,200 clients that have participated in our programs. We expect that number to grow tremendously this year through the programs we have with Stanford, Wharton and Yale.

Thank you. Your next question comes from [Chow Chen] with Citi China.

[Chinese]

Kenny Lam;President^ Okay. Why don't we take maybe one more question? No more question? Okay. Great. Okay. So thank you, everyone, for the time today and look forward to our next call. Thank you. Bye-bye.