Noah Holdings Ltd (NOAH) 2015 Q4 法說會逐字稿

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

After the close of the U.S. market on Monday, Noah issued a press release announcing its fourth quarter and full year 2015 financial results, which will be available on the company's IR website at http://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 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 new information, future events or otherwise except as required under the applicable law.

The results announced today are unaudited and are subject to adjustments in connection with the completion of the company's audit. Additionally, certain non-GAAP measures will be used in our financial discussions. A reconciliation of GAAP and non-GAAP financial results may be found on -- in the earnings press release posted on the company's website.

I would now like to hand it over to Kenny Lam, Noah group's President.

Kenny Lam;President^ Thank you, operator. Hello, everyone. Joining me today are Ms. Jingbo Wang, Chairman and CEO; and Ms. Ching Tao, Noah's CFO. I will start by providing a brief overview of the financial highlights for the fourth quarter and full year 2015 and walk you through the performance of our core wealth and asset management businesses. After that, Chairman Wang will provide an update on our strategic initiatives to establish an integrated financial service platform to support the sustainable growth of the company. Lastly, Ching will provide further insights into our financials and provide our 2016 guidance. We'll be happy to take any questions at the end of our prepared remarks.

Noah has always been focused on improving our core competitiveness in the wealth management industry. We are committed to maintaining our stringent risk control standards selecting the best quality products in the global market, enhancing the professional service skills of our relationship managers, continuously strengthening our asset management team and actively doing the development of our internet finance business. These efforts have been recognized by our clients and investors, particularly given that we've been operating in this context of a structural transition in the Chinese broader economy and volatility in the global capital markets.

I'm pleased to report that both the top and bottom lines were in line with our expectations in the fourth quarter of 2015. We also achieved a non-GAAP net income of CNY 603 million for the full year 2015. This is in line with our guidance that we gave at the beginning of the year.

First, non-GAAP net income was CNY 106 million, up 11.4% year-over-year. Net revenues for the full year 2015 reached CNY 2.12 billion, a 38.7% increase from 2014, and non-GAAP net income was RMB 603 million, a 25.9% increase from 2014. We distributed 2 CNY 20 billion of wealth management products during the fourth quarter, up 69.4% year-over-year, and we distributed CNY 99 billion for the year, a 52.6% from 2014.

Total assets under management as of December 31, 2015, were CNY 86.7 billion, a 74.3% increase from the end of 2014. These results demonstrate the progress we've made in the -- in consolidating our leading position in China's wealth management and asset management industry.

Now let's take a look at our wealth management business, which provides global wealth investment and asset allocation services to high-net-worth individuals and enterprise clients in China. We continue to see a strong growth in registered and active clients. Registered clients increased by 40.3% to 99,019 at the end of the year, and we had 12,573 active clients during 2015, an increase of 39.5% from 2014. We're also pleased to see that our efforts to continually educate investors and adjust our product mix have translated into stronger client

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CNY 4.35 million in the fourth of 2015. Average transaction value per client for the full year increased 11.9% to CNY 7.87 million.

In terms of our offline network, we expanded and optimized our network of offices to cover more cities and improve the ability of relationship managers. The offline network is continuing to transition from the breadth of coverage to depth of coverage. By the end of the fourth quarter, we had 135 offices covering 67 cities. We basically covered the first-tier and second-tier cities in main regional economies as well as second-tier and third-tier cities in developed regions.

We also continued to build a team of relationship managers, who are both committed to continuous learning and in line with our company values. Our team of relationship managers expanded from 779 at the end of 2014 to 1,098 at the end of 2015, an increase of 41%. Our focus on talent retention also helped us to maintain a 2% turnover rate for elite relationship managers, which is extremely low.

Chairman Wang will share more information about our product mix shortly, but first, I'd like to highlight that we have successfully adjusted our product mix, which will both protect our clients' long-term interest and generate a higher percentage of recurring service fees. In 2015, we distributed CNY 31.9 billion of private equity products, which is a 166.6% increase compared to 2014 and 32.2% of all wealth management products that we distributed during the year. In addition, the weighted average duration of private equity products with chargeable recurring service fees increased to 7.4 years in 2015 from 5.3 years in 2014. This transition further optimize our product mix and increased our sustainable income.

Turning to our Hong Kong business. We understood clients? needs growing -- our clients' growing needs for global asset allocation relatively early on, and we established Noah Hong Kong in 2011 to service these needs. Since then, we have built a comprehensive product platform and steadily secure a range of financial service licenses, including securities trading, securities trading consulting, asset management, insurance brokerage and family trust licenses. In 2015, we distributed CNY 11.7 billion of global products, which represents an increase of 283.6% compared to 2014.

Our family office and discretionary portfolio management services business is more focused on providing services for ultra high-net-worth individuals and family office clients. In 2015, we made excellent progress building deeper, long-term client relationships and providing services for more than 60 family office in total. China's family office and discretionary portfolio management services businesses are still in the very early stage and has huge growth potential. Family office service is an extremely important part of Noah's long-term strategy, and we'll continue to invest in the development of this business.

Now I'd like to provide an update on Gopher Asset Management. In the past 5 years, Gopher Asset Management's business has grown rapidly. It has established mature product lines for PE portfolio funds, real estate funds, real estate fund of funds, secondary market hedge fund fund of funds and quantitative fund of funds and internal credit products. As of December 31, 2015, Gopher Asset Management had CNY 86.7 billion assets under management, a 74.3% increase from the end of 2014 and a 12.6% increase from the end of the this -- of the third quarter.

Private equity fund of funds accounted for 43.7%. Real estate funds and real estate portfolio funds accounted for 36.7%, and secondary market equity fund of funds accounted for 12.4%. Gopher has already became -- has already become one of the most outstanding private equity fund of funds operators in China.

The company's asset management business also became a new engine for the company. Net revenues from the recurring service fees were CNY 316 million for 2015, a 28.6% increase from 2014. Net revenues from performance-based incomes for 2015 were CNY 100 million, a 17.3% increase from 2014.

Gopher Asset Management has always been focused on improving our investment capabilities. We have been systematically reviewing the more than 1,000 projects that we have invested in to develop top-down insight into different industry segments to improve our co-investment and direct investment capabilities.

We also maintain stringent risk control and formed long-term relationships with the world's best managers. Going forward, Gopher Asset Management will continue to expand assets under management, consolidate its leadership position in the industry and select the best fund managers to help investors share in the growth of enterprises, the new economy of the future.

When we look at 2015, we look at it as the beginning of Noah's next decade, and we have been focused on building the platforms to support our mid- to long-term growth. We've talked about our mid- and back-office initiatives and talent cultivation programs in previous earning releases. After a year of hard work, we're pleased to see substantial progress.

In terms of information systems, Noah new core business system, finance system, HR system are all up and running on schedule. This has significantly optimized user experience, improved processing efficiency and enhanced data analysis.

In terms of talent, our core management team has been very stable this year and have demonstrated the ability to collaborate closely. The key main training program for future business leaders that we launched in the first half of the year has been conducted 3 times and provided over 100 mid-level employees from every business unit with a platform to grow (inaudible).

Looking forward, we expect the external environment will remain volatile in the short term, and we'll respect market risks for industry regulations maintaining a steady hand as we steer through this period. Our historic performance shows that we're not a company that is heavily impacted by cyclical fluctuations in the market.

At the extraordinary general meeting of shareholders in January 2016, a very high percentage of company's shareholders voted in favor of the proposal to adopt a dual-class share structure. Chairman Wang, CEO of Gopher Asset Management, Mr. Yin Zhe and our management team showed remarkable leadership and judgment during the past 10 years of the company's growth. As an important part of the long-term strategy, we want the company to continue to focus on building long-term competitiveness, avoid short-term fluctuations and maintaining our corporate values. In the long run, our aspirations, objectives remain intact. We're on track to steadily build on a leading position as a wealth and asset management service provider in China.

Now I'll turn the call over to Ms. Jingbo Wang, Chairman and CEO of Noah. She'll first speak in Chinese, and her remarks will be translated into English by our translator.

(foreign language) Thank you, Kenny. Looking back at 2015. As an industry professional with over 15 years experience, we have once again learned the importance of respecting the market. Looking at the market today. On the one hand, it is concerning that we will face a slowing economy in China and globally with an increasing risk of

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focus on a well-defined strategy. With our extensive market experience and deep industry insight, we are positioned as a wealth management and asset management expert that serves Chinese people all over the world.

We have maintained our focus on building our core competitive advantages in wealth and asset management. We have continuously improved our capabilities in research, product selection, risk control and asset management capabilities. We have also enhanced the professional service of our relationship managers and continuously strive to understand our customer's real and long-term needs and build long-term trust with our customers.

In 2015, in the context of ongoing internal transformation in an abnormal competitive environment, we have made significant progress. Transformation is difficult, and we are very pleased that we have successfully resisted the temptations at the market and customer requests and focused on customer communication and investor education. Although we are yet the see the results of these efforts, internally, we are fully aligned in our commitment to being the best version of ourselves and living our corporate values rather than praying for the best market.

We are confident about the future thanks to our culture and our values. We believe that we will continuously increase our market share over the long run.

(foreign language) First, I think it is important to clearly define how we see the current market. We believe that the real economy is still facing challenges amid an environment of weak liquidity, and we expect it will continue to be a barren market for quality assets. In this context, we would like to reiterate that the key for wealth management is to control risk rather than make profit.

In the public market, our secondary market fund of funds exceeded CNY 10 billion. We believe our hedge funds of funds and quant funds of funds can help our clients manage risk. By the end of 2015, Gopher's hedge fund of funds and quant fund of funds reached CNY 7 billion in total, and all of our products generated profit. The absolute yields of the top 30 and most of exclusive quant fund of funds products are over 20%. Our quant funds achieved absolute yields of more than 13% for the year.

In terms of the primary market, we have clear strength and have selected the best fund managers in the market. And we believe that renminbi-dominated private equity funds have a historic opportunity for a number of reasons: A, share investment philosophy will gradually become more and more like the U.S.; The number of entrepreneurs will continue to grow; Chinese companies listed overseas are returning to the Asia market; and we expect more regulatory support.

With Gopher's investment capabilities and Noah's investment and fund raising capacity as well as our qualified relationship managers and LPs, who have experienced all of the economic cycles over the last 10 years, we are confident that we will continue to increase our competitive advantage and market share in the core area of private equity.

Looking at our numbers. We distributed CNY 31.9 billion of PE funds in 2015, 167% increase year-on-year. These products accounted for 32% of wealth management products distributed in 2015, up from 19% in 2014. We have been closely following hot investment trends such as the aging population, urbanization, supply-side upgrading, global rebalancing. We have also established cooperation with the best fund managers in high-growth industries such as Internet, health care, culture, education and intelligent hardware.

(foreign language) In terms of fixed income products, we have strategically reduced our investment in real estate financing products that are dependent on development and construction and shifted our focus to high-quality supply chain finance. We have established long-term relationships with premium partners such as higher China Mobile and Far Eastern Leasing. At the same time, we have made progress in industrial M&A funds, public company mezzanine financing, and holding and managing real estate assets at core areas.

In 2015, we distributed CNY 36.6 billion of fixed income products, which accounted for 37% of all wealth management products distributed, and asset quality improved substantially. The development of our global open-architecture product platform is also progressing well. Since we established Noah Hong Kong, we have been focused on optimizing our portfolio of international products, which currently covers real estate funds, international M&A funds, hedge funds, foreign fixed income bonds and insurance.

Noah has built long-term partnerships with prestigious overseas financial institutes such as State Street, Blackrock, The Carlyle Group, TPG, Oaktree Capital and KKR. In 2015, we also started strategic relationships with McKinley Capital Management, Union Bancaire Priv?e and the UK Trade & Investment.

Noah Hong Kong distributed CNY 2.1 billion of products in the fourth quarter of 2015 and CNY 11.7 billion in the full year, an increase of 149% and 284%, respectively, from the corresponding periods in 2014. By the end of the year, international assets under management reached CNY 12.8 billion, a 245% increase from the end of 2014. The demand for international asset allocation has been increasing in line with globalization.

In addition, high-net-worth clients' motivation to invest internationally has shifted from risk diversification to proactively seeking returns from international investment. In light of this trend, we will continue to build our global open-architecture product platform and take advantage of the opportunities related to the long-term liberalization of China's capital markets.

(foreign language) Noah has always focused on product diversification and continuous innovation based on industry insights. The capital market in 2015 clearly changed high-net-worth clients' wealth management needs from seeking higher return to risk control. One reflection of this risk aversion has been the dramatic increase in demand for insurance products, and Noah has long been prepared for this. Noah holds independent insurance brokerage licenses in both Mainland China and Hong Kong. We have experienced teams of actuaries and insurance products to help clients design and customize product selection.

In 2015, the number of clients of our insurance brokerage business increased by 179% year-on-year, and revenues increased by 59%. In 2015, we have also made good progress in family office and discretionary portfolio management services as high-net-worth clients' needs have transformed from product driven to asset allocation driven. And customers have recognized Noah's ability to allocate assets both globally and across asset classes. Currently, our family office business unit manages 60 client accounts.

As a subsidiary of Noah, Enoch Education has been well received by our clients over the past year. We have always been committed to the principle of wisdom and fortune come in pairs. And finding ways to help our relationship managers and clients grow together is one of our most important responsibilities. In 2015, we launched a series of trainings for over 4,000 clients. The Enoch wealth management class, which educates investors on market cycles, economic trends and portfolio investment philosophy, has been very well received by our customers.

Finally, I would like to say that while it has been a challenging year for both Noah and the entire wealth management industry, I'm very pleased and proud of all the achievements and progress we have made.

(foreign language) As we look into 2016, the most important themes will continue to be respecting the market, persisting with risk control and bottom line thinking, and our team is fully prepared. Over the past 10 years, Noah has proven to be a company that is impacted the least during cyclical volatility. Market volatility presents us with more opportunities than challenges, and we believe that exceptional wealth and asset management firms always lose market share during bull markets and gain market share during bear markets.

The recently issued working report from the 2 sessions emphasizes the need to prevent regional financial risk, which indicates that there will be more powerful supervision in the future. This is also the best time for Noah to build our brand and strengthen our core competitiveness. As they say, never waste a good crisis.

Since Noah was founded 10 years ago, we have now been operating in the capital markets for 5 years. We have experienced several rounds of market volatility, which has made us more mature. 2016 marks the start of the next decade for Noah. We will leverage our experience and industry insights from the past decade to define our path for the next decade.

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, Chairman Wang, and hello, everyone. Today I'll give an overview of our Q4 and full year results and then open the call up for questions.

As Kenny and Chairman Wang noted, we are really pleased to have delivered solid results for the fourth quarter and full year 2015. Q4 net revenues increased 47.5% to CNY 573.7 million or USD 88.6 million, and full year net revenues increased 38.7% to CNY 2.1 billion or USD 327.3 million. On the bottom line, non-GAAP net income grew 11.4% year-over-year to CNY 106.2 million or USD 16.4 million in the fourth quarter. And for full year 2015, non-GAAP net income grew 25.9% to CNY 603.5 million or USD 93.2 million, which was in line with our guidance of USD 90 million to USD 95 million.

Looking more closely at our fourth quarter performance. We distributed approximately CNY 20 billion or USD 3.1 billion of wealth management products in the fourth quarter, representing a 69.4% increase from the same period a year ago. You can find a breakdown of operating metrics in our wealth management business at the back of the earnings release.

The weighted average onetime commission rate for fourth quarter was CNY 287 million or USD 44.3 million, accounting for 47.6% of total revenues in the fourth quarter of 2015 compared to CNY 217.5 million in the fourth quarter of 2014 or 52.7% of total revenues. The decline in recurring revenues as a percentage of net revenue was primarily due to change in the product mix of our wealth management business and a change in the composition of asset types in our asset management business. Going forward, we expect recurring revenues to account for around 50% of net revenues over the long term.

We continued to see strong revenue growth in our internet finance business and achieved CNY 15.2 million or USD 2.4 million of net revenues in the fourth quarter, representing growth of 102% year-over-year. We're pleased with the way this segment is growing, and we'll continue to invest in what we believe will be an important part of the Noah offering in the long term.

We received CNY 57.1 million or USD 8.8 million in net revenues from performance-based income during the fourth quarter related to the positive performance of secondary market products compared to CNY 10.2 million in the year-ago period. Note that we recognize performance-based income when the cash flow can be reasonably assured.

Looking at our profitability. The operating margin was 8.2% in Q4 compared to 28.2% in the year-ago period. The decrease was primarily due to the growth in relation manager compensation exceeding the growth in net revenues and a CNY 31.9 million decrease in government subsidies received in the fourth quarter of 2015 compared with the fourth quarter of 2014. The increase in relationship manager compensation was mainly due to an adjustment in our product mix as we distributed a greater volume of private equity products. Private equity products accounted for 32% of total financial products distributed during the fourth quarter of 2015 compared with 19.2% in the fourth quarter of 2014. As we offer higher incentives to relation managers for the distribution of PE products, the increase in PE products distributed led to a significant increase in our relationship manager compensation expenses during the quarter. It is important to note that 99% of private equity products distributed in the fourth quarter have recurring service fees with an average duration of 7.9 years as compared to an average duration of 1.1 years for fixed income products. So while there is a higher upfront cost of distributing PE products, we will continue to see benefits for many years to come.

Non-GAAP net income margin -- net margin for the fourth quarter was 17% compared to 24.8% a year ago. Our balance sheet remains very healthy. As of December 31, 2015, Noah had approximately CNY 2.31 billion -- CNY 2.13 billion or USD 329.3 million in cash and cash equivalents, an increase of about CNY 344.5 million from the previous quarter. We posted positive operating cash on the fourth quarter of CNY 247.2 million or USD 38.2 million, which is primarily due to the improvement in accounts receivable turnover and a temporary impact of deferring payments for certain compensation and benefits and other expenses. Accounts receivable turnover days was 60 days compared with 71 days last quarter.

Finally, I'd like to provide our net profit guidance for 2016. We expect non-GAAP net income for the full year 2016 to be between CNY 690 million to CNY 720 million, representing an increase of almost 15% to 20% compared with the full year 2015. This growth rate reflects the strong fundamentals and steady profitability in our core businesses.

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

(Operator Instructions) And the first question comes from Sam Dubinsky with Carlson Capital.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Just a few here. If I look at your operating income, it declined 57% year-over-year in Q4. So like how do we think about that versus the net income guidance of 14% to 19% growth? Like how does the operating income line trend going forward?

Kenny Lam;President^ Sam, thanks for the question. It's Kenny. Can you hear me well?

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Yes.

Kenny Lam;President^ Okay. Thanks for asking that question first. I actually want to address that head on. First of all, I think Ching mentioned a lot in her speech around the change in product mix, which is quite conscious. We basically wanted to move towards longer-duration product, which actually brings us recurring revenue for many years to come. So in essence, what you see is we have costs that are more upfront, a lot more recurring revenue in the future years. And so the margin is -- the margin for that particular quarter, but the revenue actually doesn't get reflected until years later, so that's one point. Secondly is, actually, you see that in our operating income, we actually have a item called government subsidy, which actually tends to fluctuate between quarters but quite stable over the year. So what happened was that we actually received a larger portion in previous quarters, and we received much smaller portion in the fourth quarter. But over the whole, we actually received probably around 20% to 30% more government subsidies in 2015. So that's why I think we did a very thorough budget for next year. We are quite confident we will actually reach the guidance that we just announced.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ And what's embedded in terms of -- if you can disclose like government subsidies and things like performance payments, just so we can (inaudible) embedded to it.

Kenny Lam;President^ Yes, I think we can't do all the line-by-line items, but essentially, the name is not exactly a subsidy. What this is we conduct businesses in certain cities where the government provide incentives for us to be conducting businesses in those cities. And so those basically are the more business we do, the more incentives we get, and that's it. So they're not really subsidizing us but much more if we do in certain cities that we do businesses in, then they will basically help us with a refund or -- it -- really, it depends on the volume business that we do, so it's really -- it's highly related to how much we do in a particular city.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Okay, great. And just how do we think about the OpEx line going forward given the change in product mix?

Kenny Lam;President^ We -- I think we'll -- it will become more stable. I think in December -- in the fourth quarter, there is a conscious choice to make sure we get a lot more market share. So you see that we have substantially increased in client numbers, we have substantially increased in terms of volume as a way to prepare for '16. That's why I think in terms of the margin, we'll be in line with average what we see of 2015. The fourth quarter is a bit of an abnormal quarter because of the fluctuations, the subsidy as well as the incentives we give to the relationship managers for the long-term-duration products.

Ching Tao;Chief Financial Officer^ Yes, so I would just add to that and say that in the fourth quarter, in particular, there was a bit of a hedge fund relationship management compensation, certain selling and marketing expenses and also relatively less government subsidy that were received. We expect the operating margin to normalize and see improvements in the first quarter of 2016 and going forward.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Okay. And just tax rate, things like that, I thought the tax rate looked a little bit low this quarter. How do we think about that?

Kenny Lam;President^ We -- yes, go ahead.

Ching Tao;Chief Financial Officer^ Yes. We have been trying to optimize our tax rate and work with the government authorities. So we do operate businesses in certain areas where we have a preferential tax rate. And so overall, that had helped our expected tax rate come down a little bit.

Kenny Lam;President^ So I mean, thanks to Tao Ching and the team, we've -- in the last 18 months, we've -- we have a very strong finance team that basically helped us on 3 things: one is the government "subsidy;" second is the tax rate; third is you see that in our cash and investment income, it has also improved. We think that into the treasury and the finance functions, the Noah team has really delivered this year and will continue to improve on that next year.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Okay, great. And my last one is just what exactly -- the investment income was good this quarter, in Q4, a little bit higher than normal. What exactly is that investment income? And also is that just a straight line going forward, or how do we think about that?

Ching Tao;Chief Financial Officer^ Yes, I would look at the full year amount investment income typically represents returns earned from the cash and cash equivalents, short-term money market funds and certain short-term wealth management products, so still very, very safe investments.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Okay. But so it's the number for the year and not the quarter?

Ching Tao;Chief Financial Officer^ In that particular quarter, there may be a little bit of volatility. I would also note that we have our cash and cash equivalents invested in both U.S. dollars and RMB, and so depending on the fluctuation in the exchange rate, et cetera, there may be a little bit difference in how we book it, which is also why we've now, going forward, changed our reporting currency to RMB, with one column for U.S. dollar reconciliation. But the cash and cash equivalents and short-term investments, mainly our money markets and other very safe, fairly highly liquid, short-term wealth management products.

And the next question comes from Du Lijuan with CICC.

Lijuan Du;China International Capital Corporation Limited, Research Division;Analyst^ I have 3 questions for -- first 2 for Ms. Wang and Kenny and second -- and the third one for Ching. So the first 2 questions is like we see a fee rate decline trend although with an upgrade in product mix. And we also seeing company is getting more cautious attitude in product screening. So my question is that can you share with us how is Noah going to maintain a double-digit growth in 2016. And for Ms. Wang, do you -- if you have to list your key focus this year for Noah, do you -- could you give us 3 priorities this year? And the last question for Ching is that, Ching, could you share more color on the incentive policy for RMs when they sell these PE products with longer duration? I mean, could you give us some quantitative indicators why they are not -- they need to be paid more? And how do you pay them within different years or something?

Kenny Lam;President^ Okay. Well, Lijuan, so I'll first answer the -- I'll answer the first question, and I'll let Chairman Wang answer the second, and I'll let Tao Ching answer the third one. So in terms of maintaining double-digit growth and a guidance of 15% to 20% increase in the profit, I think you will see that this quarter is a strategic quarter. What we see in the market is that there is a lot of room for us to gain substantial market share, so we actually changed a few things. One is we shift towards very long-term products, which allow us to be very sticky with our clients, right? So average duration is 7-plus years, and so these are clients that will stay with us for a long time. And not only do we have active increase in the number of clients but also active increase in the duration of the products they buy and active increase in the amount that they purchase on a per-transaction basis. The second thing that we've done is, you see, we've shifted the product mix not only to long-term PE but also to insurance. Now the insurance will never be a majority of what we do, but it's actually an important part of having a broader conversation with a client on asset management and asset allocation. And so our insurance brokerage license in both Hong Kong and China have actually helped us substantially, you've seen, in this quarter, so our clients in insurance increased by 170% plus. So that would immediately help us set a good base for 2016. The third thing we've done, actually, you see that in our relationship manager base, we've increased substantially from 700-plus to about 1,000-plus now. That increase was not just focused on this year. We'd actually spent a year just training them so that they are actually even more productive next year. And we actually send this year, for example, 130 relationship managers to Z?rich to get them trained on family office asset allocation. So this whole year is basically a year of preparation, of consolidation and of market share for next year. So that's why we are quite comfortable we'll get to the guidance we just announced.

Okay, our Chairlady Wang will answer the question in Chinese, and then I will translate that in English. (foreign language)

(foreign language)

Okay, thanks, Lijuan, for your question. In terms of the 3 priorities, what we are focusing on in 2016, I think the first one, we are still want to optimize our product structure and also educating investors. And we would like to have also, at the end, for this year, investment philosophy, which is consistent with the institutional investment. The second one is, actually, we would like to enhance our investment capacity of our Gopher Asset Management in all firms. I think in 2016, I think it's a very good opportunity for the Gopher Asset to leap forward. Number three is, actually, we're going to focus on the Internet -- financial Internet wealth management platform. We think it's a very good opportunity in this year for us to enhance that capability as well.

Lijuan Du;China International Capital Corporation Limited, Research Division;Analyst^ (foreign language)

Kenny Lam;President^ So let me just translate the question right. So the question was when do we see the Internet finance business turning into from a volume game to a -- to one that's focused on profitability. So that's the question there.

(foreign language)

Okay, I think we have to focus on long term. And I think to establish a strong Internet finance platform is an irreversible trend. But now we do -- we are not particularly focused on profitability, but we want to gain more market share. Number two, we still think the landscape -- the competitive landscape in the Internet finance industry is still very challenging, however, that the recent cleanup actually opens up more opportunity for us to grow in the future.

[Foreign Language]

I just want to add it to my comment. Actually, there has been a lot of debate over it as Internet finance or finance Internet. Actually, our conclusion is that, actually, the core is still finance. So I think Noah has a very strong platform, has a very -- is very competitive in terms of fundraising and as a finance company. So I think Noah has a really good and long-term potential to further grow our Internet finance platform.

Kenny Lam;President^ Just to -- it's Kenny here. Just to add a point around Internet finance and how much we're investing, basically, we're looking at this sort of closely, the 2 main businesses. The wealth and asset management businesses are the main profit driver of the entire group. The Internet finances, this is an area that we want to invest in, but we're also ensuring that how much we invest is actually a small percentage of the entire group's profit every year. And now that we've grown substantially in 2015, we'll continue to invest in this particular platform; but at the same time, we're actually looking at the numbers very closely to ensure that we don't exceed the amount that we want to invest in this particular new business.

Lijuan Du;China International Capital Corporation Limited, Research Division;Analyst^ Okay. Ching, could you share your view on the incentive policy?

Ching Tao;Chief Financial Officer^ Yes. So basically, we have a fairly complicated commission structure by which we pay our relationship managers. The commission rate differ a little bit by asset class. So typically, the private equity asset class has higher -- a slightly higher commission rate. So since we did distribute more in terms of transaction value in the fourth quarter, the relationship manager compensation, correspondingly, was a little bit higher. Now I would characterize that as akin to a timing mismatch between when we booked the cost and also when we received the revenue because the private equity fund generate management fees, and the duration -- the average duration has increased to over 7 years. So we expect a very healthy stream of recurring service fees to come from the private equity products that we distributed. We're also seeing near term that there's going to be increased revenue from these management fees in early 2016. So I cannot give you the specific amounts, but we expect overall that the operating margin will recover and will be more close to the average levels we've been running at for the past few years. So I would not be terribly concerned about the quarter-over-quarter volatility.

And the next session comes from Joy Wu with JPMorgan.

Joy Wu;JPMorgan Chase & Co, Research Division;Analyst^ I have 2 questions. One is do you see any capital needs going forward for business expansion? And the second one is that we hear some rumors that Noah is going private. I'm wondering if that is one option going forward for Noah.

Kenny Lam;President^ Okay, so thanks for the questions, Joy. And I like that we're asking very direct questions. One is there is no plan to privatize, and I will just dispel all rumors that we're going to take this company private. So we will maintain our U.S. listing, and we will not go private, right? So the entire discussion around a restructure is actually -- as we said, we've been very transparent. We want to focus on the long term. We want to create a structure which allow the families to have more execution ability and agility, and that's it. So there's no plans at all to privatize or delist from the U.S., so we want to maintain our U.S. listing. I hope that's clear. That first question really around capital, we do have a large amount of cash. We are cautious in what we look into, but we're quite active into thinking through the potential acquisition to expansion plans. The normal capital plans are the normal course of business, which includes IT investments, which includes expansion of our different businesses, and that should not be a substantial growth in 2016. The inorganic growth, it's an area that we want to look into that may actually use some of the cash that we have. That includes asset management potential acquisitions. But we're still very conscious in looking through what we can do.

(Operator Instructions) And our next question comes from Ryan Roberts with MCM Partners.

My first question was just a follow-up on an earlier on actually, just kind of -- just for clarity purpose. I think you said that the commission structure for different products, that's all the same. However, the different product categories, the commission varies. Is that correct for RMs?

Ching Tao;Chief Financial Officer^ Let me explain it this way. So we earn onetime commission for distribution of wealth management products and the -- and booked at net revenue as onetime commission. So the commissions earned to Noah Holdings, the onetime commission vary by asset class. And we disclose the -- it's a little bit below, so 0.85, 0.86 is the number. Now separately, relationship managers are paid with a low base salary, and the rest is basically commission bonus. So relationship -- the commission we pay to relationship managers, the commission rates vary by asset class a little bit as well. So I was saying that when they sell private equity products, that they typically command a slightly higher commission rate to the relationship managers paid in the form of bonuses.

Kenny Lam;President^ So just keep this (inaudible), the rate itself is slightly higher by asset class for private equity. But if you look at the numbers that we disclosed, we have a substantially higher absolute amount in private equity products, right? So for example, last year, we did CNY 99 billion, of which 32% is private equity, right? And the year before, we did CNY 63.4 billion, of which 18.9% is private, okay? So if you multiply that to the amount that we distributed, that is one of the main reasons why compensation to RM for this quarter is particularly high. But as we said, this represents multiple years of recurring revenue for us that -- which is substantially different from what we had before.

Got you, okay. My next question is on the branch network. There's been pretty serious growth year-over-year. I'm kind of curious where we are in the overall process. Should we expect to see more production from branch offices? Or kind of how should we look at the geographic footprint kind of going forward?

Kenny Lam;President^ So I think we've -- it's Kenny here. In terms of growth, both in RMs as well as in city coverage, I think we're largely done. We may find a few areas that we still want to grow in terms of city and city coverage. So this year is all about consolidating what we have already built in 2015. So we don't expect to grow another 30 cities or 15 cities even or even grow substantially in the branch offices. If you look at China, basically, we are already fully covering every city that we want to cover in terms of high-net-worth individuals.

Ching Tao;Chief Financial Officer^ I would -- okay, related to that, I would further note that the growth in relationship manager headcount exceeds the growth in the fixed branch or fixed asset network. So we're focused much more on relationship manager productivity because they're our key sales force. Now part of why it's important to have a branch network is this is a trust business and a local business, so the relationship managers have to have local offices, where they can meet the clients and conduct business. But the focus is much more relationship manager productivity as a driver of growth.

Okay. So that's a better metric to focus on. Okay. And if I could just sneak one more in, on the Internet finance business, you mentioned before like, Kenny, about your growing market share, and the business is growing well. Can you share with us some metrics that you're looking at that we can kind of gauge to understand how that business is growing and when -- again, when profitability could become more of a possibility for that?

Kenny Lam;President^ So just one thing on Internet finance business, so we actually could make this a profitable business right away. What we were looking for, if you've locked up of metrics, are basically 3 things. One is we want to make sure we have not only registered clients but also paying clients, so clients are actually transacting on our platform. So that one has grown substantially. I numbers are -- we've disclosed already. Second is we want to make sure that we grow also on per transaction in terms of clients, and that number has also grown substantially. I think some -- related to something around USD 23,000 on a per-transaction basis, which I think is one of the highest, if not the highest, for any wealth management platform in China. So that's a second thing we look at. The third thing we look at is the -- it's a qualitative metric. We want to make sure that they don't just focus on 1 or 2 products but a broader suite of products, right, so moving away from just simple fixed income products to insurance, to other types of products that we think should -- would be suitable for mass affluent or affluent clients online. So those are 3 things that we care a lot about at least in the next 6 to 12 months to ensure that this business gets on a solid footing.

Okay. Can you give us a sense of what that last metric in terms of your -- it sounds like not quite a repeat customer ratio but kind of more of a much more -- how you'd phrase it...

Kenny Lam;President^ Yes.

Yes, I mean, sort of cross-selling, yes.

Kenny Lam;President^ So basically, if you look at our (inaudible) clients, it's over -- I can't give you the specific number, but it's absolutely over 50%, which is also if you look at any platform in the market, it's likely going to be the highest, if not one of the highest.

And the next question comes from Anson Huang with Credit Suisse.

Jie Huang;Crédit Suisse AG, Research Division;Analyst^ This is Anson. And we noticed -- 2 questions from my side. Firstly, we noticed PE product distribution contributed a lot to the growth last year. But looking ahead, it seems to me that second -- because secondary market products and trust products may be difficult this year, so what will be the key driver for the growth you're seeing in terms of products distribution? And second question is we noticed that (inaudible) is investing too high, one of our competitors, so want some comment from the management in Noah. Will we follow?

Kenny Lam;President^ Just give me a second, we will see if Chairman Wang could answer the question around the product structure.

Ching Tao;Chief Financial Officer^ (foreign language)

(foreign language)

Kenny Lam;President^ And then to your second question around the transaction that was done on one of the players in the industry, and we don't want to comment on particular deals, and I'll -- but I'll leave you with 3 parts. At Noah, we don't believe in executing transactions that may look good on the surface but doesn't really add value to the company. That's one. Second is we don't believe that in this market, we need to have a player investing in us that is also focused on distribution. I think what we need to do in this market is to add asset management capabilities, not distribution capabilities because I think we've -- we have the market pretty well covered in terms of clients. What we do need is global asset management capabilities, not distribution capabilities. So for the particular transaction that you mentioned, I don't think it falls under that category. The third thing is for any strategic share to come in, it needs to be substantial. So at a small percentage, it doesn't really add much value to any particular company. But as I said, I don't want to comment on any particular transaction. But from our side, those are the 3 thoughts that we would leave you with.

I would like to translate the first question for Chairlady Wang about the product structure.

Kenny Lam;President^ (inaudible)

Yes. Just now, Chairlady Wang just commented on our product structure in 2016. She basically said that the products are our core competitiveness, and we still believe so in 2016 and even beyond. I think the key drivers for 2016 is mainly focused on the private equity, including private equities for a good -- with good -- cooperation with good partners as well as, actually, we are focused on the fund -- private equity fund of fund business as well. And then the second thing we are focused on is actually M&A-related products. I think in terms of the M&A is very -- M&A activity is very supported by the regulations, and we are still see an increasing demand from the listing company as well as the non-listing companies here in China. So maybe some -- we are going to do more M&A-related products in 2016. In terms of the fixed income products, our main focus in 2016 are supply chain financing, consumer financing, so on and so forth.

Then the next question comes from Henry Lau [ph] with Goldman Sachs.

So my first question is regarding the dividend policy or potential share buyback. Can you share more about that in the future?

Kenny Lam;President^ Well, so just translating for Chairman Wang. It's Kenny here. One is we -- this year, we maintained a policy of no dividend. I think the company's actually growing at a substantial rate. We want to maintain our cash balance to ensure that we can take opportunities where they come, and so we'll maintain a no-dividend policy for this particular year. In terms of share buyback, you will see that we announced a share buyback program in July last year. We'll continue that program for a year from July last year. And if we see the -- our share price going down to a certain level that we think it's value -- it's highly undervalued, then we will continue execute on that share buyback. We've actually executed on that share buyback program at some points during last year when we see the share price dropping to a level that we think is actually not reflecting the full value of the company.

Ching Tao;Chief Financial Officer^ So just quickly to add to that, you'll see in our third quarter 6-K earnings release, we bought back about USD 7 million worth of shares. This was back in around late August, early September. At the fourth quarter, there were no buyback.

Okay. So my next question is regarding what has mentioned by Chairman Wang, like about the abnormal competition we experienced in 2015. Like can you elaborate more on that? And do you see any pressure on the fees we charge on for both the bond management managers? Do we have pressure on that side from competitors?

Kenny Lam;President^ So I'll take that question for Chairman Wang. The "abnormal competition" is, if you see the last 6 months in the China wealth management market, there are a lot of players coming in that are not really well disciplined in terms of risk management in terms of the way they look at financial products. And you also see these players coming in attracting clients. And so that competition has, frankly, died down substantially in the last few months given the regulatory controls. But in the last quarter of 2015, we do see a lot of players just coming in without much proper training and preparation and starting to offer wealth management -- "wealth management products" to clients. We see us consolidating the market in a few areas, right? So in terms of asset management, as Chairman Wang said, we're now heavily focused on ensuring that in a few asset classes, we are the #1 or #2 player in the market; so for example, private equity fund of funds, private equity is an area that we dominate. And so the approach is to ensure that after we dominate, we are able to understand the industry in such a way that we can carry that advantage for many years to come, right? So we mentioned that in private equity, we now have looked at about 1,000 projects. So we actually have a sense of where the market is going much faster than the rest of the market. So in terms of the asset and wealth management industry, I think we've put ourself in a pretty good position. Now of course, there is a lot of competition, but we think that we're pretty well positioned for at least for a few years to come.

And as there are no more questions at the present time, I would like to turn the call back over to management for any closing comments.

Kenny Lam;President^ Okay. So if there are no questions, I want to thank everyone for taking the time. I think this quarter has been a great quarter for us in terms of strategic position for the next decade, and thank you. We look forward to hearing from you. If you have more questions, please write to our IR team, and we can take more questions offline.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.