Noah Holdings Ltd (NOAH) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Noah Holdings Limited Fourth Quarter and Full Year 2016 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 fourth quarter and full year 2016 financial results, which is available on the company's IR website 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 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 the 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 are subject to adjustments in connection with the completion of the company's audit. Additionally, certain non-GAAP measures will be used for our financial discussions. 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 have a goal over to Kenny Lam, Noah's Group President.

Thank you, operator. Thanks all for participating in our earnings conference call today. Joining me today are Ms. Jingbo Wang, Noah's Chairlady; and Mr. Shang Chuan, Noah's CFO. As for today's agenda, I will start by providing a brief overview of our financial highlights for the full year of 2016 and then discuss our core wealth management and asset management businesses. I will then touch upon the development of Noah's business back-office capabilities. After that, Chairlady Wang will provide an update on our product strategy and share her views on the macro and regulatory environment. Then Shang will provide further insights into the financial performance for the fourth quarter and full year 2016. He will also discuss our 2017 profit guidance. Lastly, we'll be very happy to take any questions you may have.

Looking back on 2016, despite a volatile and uncertain environment, we continued to differentiate our products and upgrade our services. We have been strengthening our global presence, diversifying our product portfolio and improving product collection and risk control capabilities.

Thanks to these ongoing efforts, we have achieved solid operational and financial performance. In 2016, new product transaction value and assets under management both broke above the CNY 100 billion mark. Specifically: total transaction value reached CNY 101.4 billion; total AUM grew to CNY 120.9 billion at end of 2016, up 39.6% year-on-year.

For the full year 2016, Noah's total net revenues increased 18.6% year-over-year to CNY 2.5 billion. Through effective cost control, our profitability has improved. Non-GAAP net income attributable to Noah's shareholders was CNY 723 million, an increase of 19.8% from the previous year, and above our profit guidance. Again, we are very pleased with what we achieved in 2016 and we remain committed to further consolidating our leading position in China's wealth management and asset management industry.

Our wealth management business provides global wealth and asset allocation services to high net worth individuals and enterprise clients in China. As of December 31, 2016, the number of total registered clients was 135,396, up 36.7% from 2015. The number of active clients that transacted with Noah in 2016 was 12,027. Further on the client front, we have deepened the multilayer architecture in client management. As an example, we recently adopted a new black card client service framework focused on serving Noah's highest-end clients. The new service setup is a tangible benefit for the ultra high net worth clients and wealthy families who can be entitled to a highly bespoke wealth management and value-added services. We believe our new client segmentation strategy will achieve high client satisfaction and trust.

We further enhanced our branch network by optimizing the regional coverage structure. After the latest initiative action last year, a new city level management structure has been established to shorten management bandwidth and increase precision in client targeting. Our 8 regions have been reorganized to 11 regional and provision divisions, and we now have 185 branches covering 71 cities as of December 31, 2016, compared to 135 branches and 67 cities as of the end of 2015.

As for recruitment and retention of relationship managers, our key strategy in 2016 was workforce optimization. More specifically, we replaced underperforming RMs with high-potential new recruits. We also continued to provide professional training to our RMs to improve their productivity. The number of relationship managers was 1,169 as of December 31, 2016, a small increase from 1,095 as of the end of 2015. The turnover rate for top-performing relationship managers was kept at a mere 0.7% for the full year. The stability of the core front-line staff is quite outstanding in the industry.

In 2017, we will refine our incentive mechanisms to encourage RMs to shift their focus more to after-sale services, with an ultimate goal of enriching overall client experience.

With regards to our overseas business, we saw a rising demand from clients for global asset allocation in 2016, and that has brought a window of opportunities for Noah, which has built out our international presence since 2012. By the end of 2016, Noah's overseas AUM reached CNY 16.9 billion, a 32% increase from a year ago. In 2016, we continued to broaden and deepen the U.S. dollar offering, particularly in fixed income private equity and real estate, where Noah now has both the confidence and the capacity to meet the diverse client demands.

Noah has formed strategic relationships with many top-notch global financial institutions. For example, among the top 10 PE managers, we have been pondering with 8 of them, including Carlyle, Blackstone, KKR, DPG, Bain Capital amongst others. As a critical part of our globalization strategy, our U.S. team will be primarily focused on screening out more high-quality, local PE/VC funds and at the same time, exploring more product and service providers in insurance, immigration and real estate and so forth. With Noah Hong Kong and Noah U.S., the 2 engines for our global presence, our goal is to provide our clients with the best-in-breed overseas products and related value-added services.

Next, I would like to spend a bit more time talking about our asset management capabilities. The strategic objective of Noah over the long term is to become a comprehensive financial platform with wealth and asset management capabilities as its twin pillars. We believe that Noah's distribution franchise and Gopher's investment capabilities are complementary.

Gopher had developed a mature product lineup, specializing in PE/VC investments, real estate and secondary markets. By the end of fourth quarter 2016, Gopher's total AUM reached CNY 120.9 billion, a 30. -- 39.6% increase year-on-year. The AUM of PE/VC, the largest asset class at Gopher, was CNY 61.7 billion, accounting for 51% of the year-end AUM, further up from a share of 43.7% as of the end of 2015. Real estate AUM was CNY 23.2 billion, equivalent to 19.2% of total AUM, further down from the previous year's 36.7%. As we have been carefully managing down our exposure to residential real estate, total exits of real estate investments amounted to CNY 37.0 billion in 2016 compared with CNY 30 billion in the previous year. Secondary market product AUM was CNY 8.3 billion by the end of 2016, accounting for 6.9% of total AUM. And other AUM, which includes multi-strategy, full discretionary mandate segments was CNY 27.8 billion, representing 23% of total AUM, much higher than the 7.3% as of the end of 2015.

Gopher's family office and full discretionary portfolio management services are undergoing fast transformation. Under the new strategic cooperation framework, Gopher starts to leverage Sequoia's proven family office experience and combines that with Gopher's local know-how and differentiated product lines to construct an endowment-style cross-asset, cross-cycle fund to help ultra high net worth clients preserve and grow their wealth. In 2016, Gopher's real estate team stayed ahead of industry shifts. We have proactively remodeled the business and adjusted down the exposure to residential development. We shifted our focus to development and operation of commercial properties in the core first and second tier cities, a strategy that is in line with the new market trend and regulatory requirements as well as new client needs.

Alternative investments are becoming increasingly institutionalized in China, with pension funds, insurance, city commercial banks and other large institutions entering into the space. For this reason, Gopher has been building up a professional institutional sales team. In the fourth quarter of 2016, a number of institutional investors invested in Gopher's flagship fund of funds after rigorous due diligence. We also understand that when it comes to dealing with institutional investors, post-investment management can be the make-or-break factor as they are subject to stricter regulatory reporting and other requirements than retail investors. Gopher is pushing ahead a major system upgrade in operation, risk control and disclosure to better serve institutional clients.

Lastly, I'll briefly talk about our mid- and back-office initiatives. I think one of the highest -- one of the brightest spots in 2016 was that we have further strengthened our talent pool. We have made quite a number of important senior hires in 2016. These newly recruited industry veterans with proven global experience can help us strengthen our investment and research capabilities. We're also putting great effort in coaching development talent within our own group. We launched the so-called Noah 100 program to train and enable high-caliber relationship managers to better serve high net worth clients. We also have programs in place to help identify capable mid- and back-office professionals to unleash their potential. We have also been conducting a management training program for many years to prepare for Noah's next wave of talent.

Aside from talent retention, we've also prioritized on a few IT-upgrading projects and kicked off a firm-wide digitalization initiative. In 2016, Noah's new core business management system, CBS, and sales system, CRM, have both gone live, streamlining IT systems across the front and back office. We also launched a few new mobile apps, including Noah 2.0 and Noah Hong Kong app, both of which are the key client mobile portals. And last quarter, we've established a data and innovation center to implement Big Data and small data technology across departments to ensure that Noah remains at the forefront in serving the evolving needs of our clients.

Now I will turn the call to Ms. Jingbo Wang, Chairlady and CEO of Noah, who will speak in Chinese and her remarks will be translated into English.

(foreign language)

Thank you, Kenny. Globally, the year of 2016 was the year of the black swan. Here at home, China's stock market kicked off the year with (inaudible) and ended the year with a sharp fall on market sell-outs. The Chinese economy continue to shift gears and juggle between the slowdown of the old economy and the growth of the new economy. The growth of a company or a country, could be likened to the growth of bamboo plant. In an expansionary phase, the economy will grow smoothly along an even path, just as a bamboo will grow upward without nodes in tranquil seasons. However, vulnerability would also be accumulating. Economic restructuring is akin to the originating of the nodes on the stem of bamboos during adverse conditions. It is the node that holds leaves and buds which can grow into branches. Similarly, economic reforms or nodes can make the economy ever more resilient and create the foundation for the next expansionary phase.

(foreign language)

Throughout the changes and challenges, 2016 was the end year for problematic companies, a difficult year for new entrants and a demanding year for established players. As a leader in China's wealth management industry, in 2016, we focused on avoiding mistakes, being compliant, innovating products, retaining talent, improving efficiency and controlling costs. Throughout Noah's development, we have learned the importance of respecting the market and, as such, always use compliance and risk management as our foundation. In 2016, we held ourselves to higher standards. In the face of all-time markets and intensifying competition coming from wealth management companies, fin tech startups and even P2P platforms, we invested more in investor education and relationship manager training and focused on products and operation. We adhere to our pledge that we distribute and manage products which have independent custodian and never sell products backed by capital pools with maturity mismatches or with excessive leverage. We raised the standard for our investor screening which in return increased our client quality. Inside Noah, Noah University afternoon investment seminars as well as a series of client communication events attracted nearly 150,000 investors in 2016. In addition, more than 9,000 clients participated in various Enoch Education programs and Noah CARE events. With market risk on the rise, we are pleased to see our clients increasingly embrace the concept of asset allocation, long-term investment and risk diversification, which we have been advocating from the very beginning. As investors become more sophisticated, our client quality continues to rise as well.

(foreign language)

Next, I would like to talk about the main categories of Noah and Gopher products. After years of unwavering efforts, Noah has become arguably the preferred distributor of choice for leading PE/VC file fund manager, and Gopher has become one of the most active and sophisticated fund of funds in the market. Most of the breakthrough companies representing the new economy are sponsored and capitalized by the top PE and VC funds. Globally, private equity investment, traditionally consider alternative investment, are increasingly more mainstream and becoming the driver of innovation and entrepreneurship. In China, the private equity industry has expanded more than 50x in size in the past 10 years, during which Noah is an important industry player and beneficiary. In the realm of PE/VC market, head effects and mass effects manifested themselves quite prominently as the top 20% GPs can harvest 80% of the total return. As such, we have been adhering to our key strategy of partnering with leading managers. Over the past 10 years, Noah and Gopher have established strategic relationships with the top 20% managers. Our track record has been recognized by the industry leaders and we believe that in 2017, Gopher will attract more institutional investors, including but not limited to, insurance companies, banks and local government funds. Based on our latest quarterly results, total transaction value of VC/PE products distributed in the fourth quarter reached CNY 8.5 billion, up 33% year-over-year and 58% quarter-over-quarter. Total transaction value for the year reached CNY 27.5 billion, accounting for 20% of total distribution of wealth management products. By the end of the fourth quarter, Gopher's PE/VC AUM reached CNY 61.7 billion, up 63% year-over-year and now representing 51% of total AUM. Gopher only invests in market-leading white horses and high-potential dark horses funds, which help our clients capture rare investment opportunities. Our clients have started harvesting the VC/PE product distributed by Noah since 2007 after a quite a few successful exit in the past year. We believe there will be more to come this year. Among the clients who invested in Noah's PE/VC products, there is a growing consensus on the cross-cycle asset allocation philosophy, which Noah has been an avid supporter of. According to the just-released 2017 high net worth white book, more than 70% of the investors polled have plan to increase position in PE/VC products. Therefore, we believe there will be further room to grow both PE/VC transactions and AUM in 2017.

(foreign language)

On secondary market products, because volatility and a theme-driven Asia market continue unabated in 2016, retail investors remain unenthusiastic and the market did not stage any meaningful revival. However, we think this adjustment is conducive to the long-term development of China's stock market, as investors and practitioners will become more rationale and their impetus trading mentality will turn more stable. Moreover, we believe there will be more outperforming fund managers emerging in the secondary market. Noah will continue to research the market and screen out the best hedge fund managers to help clients better manage their assets in this category. We distributed a total of CNY 7.8 billion secondary market products in 2016. In the meantime, Gopher has strengthened its secondary market fund of funds offering to cover hedge, hedge fund of funds, cost fund of funds, private placement fund of funds and mutual fund of funds. At the same time, Gopher has been optimizing its fund of fund fee structure, promoting segregated account management and manager of managers strategy to lower the expense ratio and create higher net return for our investors. Gopher's major hedge fund of funds and cost fund of funds have outperformed the CS 300 Index by around 10% in 2016, with a max draw down of around 7% versus the CSI 300 Index of 21%.

(foreign language)

Noah's fixed income product line made a significant breakthrough in 2016 following a strategic decision made in the last few years to diversify the product mix away from residential property development. First of all, the quality of the underlying assets has been improved. Risk control measures and systems have advanced. Under our coverage are the very top product providers in this sector, ranging from consumer financing and auto financing to supply chain financing. And the counterparties include: Home Credit, [Masang Finance], China Mobile, Suning, Grand Auto Services, [Hail Leasing and Mini]. Total transaction value of fixed income products reached CNY 64.5 billion, up 76% year-over-year and accounting for 64% of overall transaction value, which is the reflection of increased investor risk aversion and higher demand for liquidity the past year.

(foreign language)

In terms of real estate product and their management, Noah and Gopher has borne some proof after shifting our focus 2 years ago from providing financing for residential development to your client operating assets and value-added properties in the core regions of Beijing and Shanghai. We also started to make equity investment in both upstream and downstream companies in the real estate value chain. Firstly, the team has been restructured. Asset acquisition and operating capabilities have become the team's key competency. Secondly, the composition of our investor base has changed. More than 80% of the interested investors are institutions, namely insurance companies. As real estate is a major asset class which is very capital-intensive in nature, we believe there will be tremendous investment opportunity ahead for us to keep an eye out for. We believe the business model of the real estate fund in China is gradually convergent with the biooperational model of commercial real estate funds in the offshore market. With the first mover advantage, we trust Gopher's real estate team will become a new business engine in 2017 and forward.

(foreign language)

Noah's long-term goal is to provide wealth and asset management services to the global Chinese. In the past year, both Noah and Gopher had a remarkable achievement in the offshore arena. By the end of last quarter, Noah's overseas AUM reached CNY 15.9 billion, a 32% increase from a year ago. According to Noah's client survey, the number of clients who allocated their assets globally has increased about 30% year-over-year. In 2016, Noah received license for trust operation in the Jersey Island and established Ark Trust Jersey to conduct the offshore trust business, making us the very first independent Chinese wealth management company to be licensed for the trust business outside of China and Hong Kong. The number of overseas trust accounts we manage have expended about 30% in 2016. Noah U.S. office, which has started generating synergy with Noah Hong Kong, will cover more leading PE/VC funds in the U.S. to better serve the needs of our high net worth clients to make global asset allocation more efficient.

(foreign language)

With aging population, client's desire to accumulate and transfer wealth is growing stronger year-over-year, so is the need for family trust services. Therefore, family office services is positioned as an extremely important part of Noah's long-term strategy. Last year, we successfully launched a new black card brand focused on servicing ultra high net worth clients. Under this new setup and based on the profiles of Noah's most high-end clients, we offer them the most professional family consulting services. Noah is capable of providing our family office clients with an unmatched range of services, including offshore company incorporation consulting, onshore and offshore family trust, insurance planning, trust, estate advisory, individual and corporate tax planning under [CRS], and education planning for the children.

(foreign language)

In 2016, our Internet wealth management business has reaccelerated following the transformation. By the end of the fourth quarter, the number of registered clients on Caifupai exceeded 400,000, a 45% yearly increase. Total transaction value on this platform was CNY 20 billion, up 68%, bringing accumulated transaction value above CNY 33 billion. In 2017, Caifupai will continue to promote various standardized products and at the same time, pay added attention to mutual funds and mutual fund of funds selection, customization and automated portfolio management. One of Caifupai's vision is to build an online mutual fund boutique house for the mass affluent individuals in China.

(foreign language)

Being an integral part of Noah's ecosystem of financial services, Noah's subsidiaries are developed around the needs of high net worth clients. For example, our factoring business like the lending company, auto financing company and Enoch Education all made significant progress in 2016, and some of them have become profitable. We anticipate these subsidiaries will grow even faster in 2017 to provide high net worth clients with high-quality, one-stop financial services.

(foreign language)

Next, I want to talk about regulation. We have seen a broad-based tightening of financial regulations in 2016. The new and revised rules have been promulgated for industries such as private equity, asset management, trust and wealth management and so on. And in some financial subsectors, the era of no regulation was ended. In particular, to better govern the distribution of financial products, regulators have been trying to implement an approval-based market access mechanism rather than dictating a one-size-fits-all policy, with either complete openness or forward vision, which is very beneficial to the health of the wealth management industry, and we strongly endorse this idea. Furthermore, the introduction of new regulation on private fundraising last year was especially important for this industry, which entails extremely high professionalism. The new rule stipulates that in order to raise private funds, private fund managers must obtain a fund distribution license issued by development regulators. This development is positive news for disciplined wealth management institutions such as Noah.

(foreign language)

Looking forward, we believe a slowing economy and growing consumer consumption are the 2 main themes. The number of the mid class in China is estimated to surpass 0.5 billion by 2020. At that time, China's middle class will become the largest in the world. Wealth management and asset management are sunrise industries and will grow exponentially and benefit enormously from the trend. Our clients have been increasing their well-being not only -- at only materialistic level, but also psychological or spiritual level. Beyond these needs, our clients are now in the quest for belonging and self-actualization. They become more willing to pay for brand and quality, and this trend is even more pronounced among Noah's clients. In summary, Noah continues to build a comprehensive ecosystem of financial services, with wealth management and asset management as its core competencies to serve the global Chinese. We view the wealth and asset management business as a marathon. To succeed in the competition, we must overcome temptation and concentrate on value creation. We need to keep up with industry trends and remain insightful. We have to understand client's true needs as well as long-term needs. We will keep diversifying and innovating our products and services. We need to continue to strengthen our capability to acquire good assets and continuously improve our capability in research, product selection, risk control and asset management. We should also keep enhancing the professional service of our relationship managers and educating them (inaudible). We have convinced ourselves that by pushing for these positive initiatives and staying innovative and motivated, we will create a revolutionary model for wealth management and asset management, which can meet client's evolving needs in the new era.

(foreign language)

Thank you. Now I will turn the call over to our CFO, Shang, to review our financial results.

Thank you, Chairlady Wang, and hello, everyone. Today, I will give an overview of our fourth quarter and full year 2016 results and provide a profit guidance for 2017, then open the call up for questions.

As Kenny and Chairlady Wang noted, we are generally pleased with our results for the quarter and the full year 2016. Net revenue in the fourth quarter increased 12.6% to CNY 646.2 million, and full year net revenues increased 18.6% to CNY 2.5 billion. On the bottom line, non-GAAP attributable net income grew 23.7% year-over-year to CNY 131.4 million in the fourth quarter and for the full year of 2016, grew 19.8% to CNY 723 million, exceeding our guidance of CNY 690 million to CNY 720 million. The financial results have been achieved during quite a volatile and challenging year. We continue to be confident we can grow our business despite market uncertainty.

Looking more closely at our fourth quarter performance. We distributed CNY 24.9 billion worth of wealth management products in the fourth quarter, up 24.4% from the same period a year ago. Revenues from onetime commission increased 21.7% to CNY 262.8 million on a year-over-year basis. Reoccurring revenues in the fourth quarter of 2016 were -- CNY 336.5 million, increasing 17.3% year-over-year and accounted for 51.7% of total revenue compared with 47.6% for the corresponding period in 2015. Our balanced and stable revenue model enable us to smooth out revenue cyclicalities despite market fluctuation and focus on longer-term development.

We received CNY 13.7 million from performance-based income during the fourth quarter of 2016 compared with CNY 60 million in the fourth quarter 2015. The decline was primarily due to the year-over-year decrease of performance-based income from secondary market products. It is worthwhile to note we have received performance-based income for more than 8 consecutive quarters now, which reflects that performance revenue becoming a recurring part of our revenue model given our diversified product strategy.

Our Internet finance business achieved CNY 21.6 million of net revenues in the fourth quarter, representing a growth of 41.8% year-over-year. We have been making effort to control costs while ensuring business needs are met. Total operating expenses in the fourth quarter of 2016 were CNY 562.8 million, up 6.9% from a year ago. A slower-than-headline growth rate was helped by a 0.2% year-over-year decline in total compensation cost.

For the fourth quarter, operating income increased year-over-year 77.2% to CNY 83.4 million, and operating margin was 12.9% compared with 8.2% for the corresponding period in 2015. Non-GAAP net margin attributable to Noah's shareholders for the fourth quarter were 20.3% compared with 18.5% a year ago.

For the full year of 2016, despite market headwind, we managed to achieve a record high in total transaction value of CNY 101.4 billion of wealth management products, up 2.4% year-over-year. Revenues from onetime commission increased 34.4% to CNY 1.1 billion from a year ago as changes in the product mix led to higher effective onetime commission rates.

As total assets under advisory and under management continue to rise, revenues from reoccurring services were CNY 1.25 billion in 2016, representing a 20.7% year-over-year increase. Performance-based income was CNY 59.2 million, attributable primarily to successful exit in real estate investment. Compared to 2015, the decline in performance-based income was due to lower performance revenue from secondary market products as broader indexes were down in 2016.

Net revenues were -- the Internet finance business were CNY 50.1 million in 2016, with a year-over-year decrease of 12.7%, mainly due to the business focus shifting to standardized products. We strongly believe fintech will be an integral part of the Noah ecosystem for mass affluent clients in the longer term, and we have seen very encouraging signs of reacceleration as of late as both transaction value and net revenue reached all-time highs in the fourth quarter of 2016.

Total operating expenses were CNY 1.8 billion for the full year of 2016, up 18.3% and matching the full year net revenue growth rate. Total compensation cost were CNY 1.3 billion, up 11.7% year-over-year, driven by the increase in the number of back-office employees and the number of recent senior hires. Operating income for the full year 2016 was CNY 667.3 million, increasing 19.4% from a year ago. And operating margin for the full year remained stable at around 26.5%.

Non-GAAP net margin attributable to Noah's shareholders was 28.8% in 2016 compared with 28.5% in 2015. Our balance sheet remains very healthy. As at December 31, 2016, the company had CNY 2.98 billion in cash and cash equivalents, an increase of CNY 1.2 billion from the previous quarter. The increase was mainly due to inflows from strong operating activities, funds received from strategic investors and collections of accounts receivables.

Finally, I would like to provide our net profit guidance for 2017. We expect non-GAAP attributable net income for the full year 2017 to be between CNY 825 million to CNY 860 million, implying an increase of 14.1% to 18.9% compared with the full year of 2016. This growth rate reflects the strong fundamentals, positive business prospects and steady profitability in our overall business.

With that, Chairlady Wang, Kenny and I will be happy to take questions. Operator?

(Operator Instructions)

Just to note the call, I think we've taken up a good part of the first hour, so we extend the call if necessary if there are more questions, yes?

And we do have a question if you're ready for it, it is from [Xu Yang] with CICC.

For the wealth management segment, secondary market products have been decreasing. What's the outlook of product mix in 2017?

Just one second. We're translating the question also for Chairlady Wang.

(foreign language)

For A share of public equity product distribution, it's quite correlated to the broader performances of the public indexes. And so if you look at our A share fundraising amount for 2012 and 2013, they were generally quite weak, in line with the broader indexes; and accelerated in 2014 and 2015. So I think it is quite difficult to predict the amount of A share or public equity fundraising for 2017. I think it will be quite dependent on the performances of Asia. In terms of private equity and venture capital, we think that there will be really high growth potential for 2017 as we see a continued growth in the new economy and the structural changes in the Chinese overall structure -- economy structure. For fixed income, we'll continue to focus on the newer type of fixed income products, mainly consumer financing, supply chain financing and auto financing. We think these are -- will have a lot -- a long-term growth trajectory. In terms of real estate, our focus will be on holding and investing core and value-added projects. So I think these 4 generally will compose of our product mix for 2017.

(foreign language)

Yes. So over the last 2 years that we have been a listed company, sometimes I see correlation between our own share price and the performance of the Asia markets, which I think is not warranted because over the last 6 years that we have been a public company, our business metric and financial markets -- financial metrics have reached a new high, despite the volatility in Asia market, given our diversified product mix is highly resilient to market cycles. Now for public equity products, I think we have been focusing on rolling out various types of strategies, including fund of hedge funds, including fund of fund funds, including mutual fund of funds. And I think we have laid the groundwork, if there is to be a bull market, we are quite confident that our AUM will accelerate and we'll be able to capture the opportunities ahead of us. At the same time, we have been innovating our product to lower effective expense ratios in terms of manager of manager and segregated accounts. So with that, we have also increased our coverage and screening of managers, especially in the most recent downturn bear market, we have gotten to know the managers out on the market better, so we're able to really prepare ourselves, once that the Asia market comes back with a recovery, we'll be able to increase the transaction value as well as the AUM for this product category. Thank you.

(Operator Instructions) The next question today is from [Yuseng Wang] with Rosefinch.

(foreign language)

For the benefit of the audience, I will translate the question raised by [Yuseng Wang] of Rosefinch. The question is regarding regulatory framework. I noticed that PBOC recently announced its intention to streamline the asset management industry in China, particularly around alternative investments. I would like to seek the management team's opinion from the impact to our wealth management business.

(foreign language)

I think it's a very good question. So I think -- we have quite a lot of insights in terms of the long-term development of both wealth management and asset management industries in China. I think for both of these industries, I think we're in early days. There's a lot of growth ahead of us. However, for the growth to be healthy, I think there should be multi-perspective or multi-factors to promote the development of the industry, both from the regulators, from the asset managers as well as in investors. I think one of the key focus of regulation and the healthy development of the industry is basically tearing down of the concept of guaranteed returns. I think we need to spend more effort in terms of investor education to increase the quality of clients, and this will be one of the winning factors for wealth management companies in the market. But this alone cannot fix the industry or promote the industry to grow in a more healthy manner. I think the regulator needs to be on board, which we think they are in terms of making sure that products are now moving towards of a NAV or net asset value concept, there is no such implicit or explicit guarantees for return. For the asset managers, they also need to be rolling out products in line with regulatory framework. And so in terms of our own business, we have been pushing for NAV products many years ago. In fact, if we look at real estate residential financing, we can perhaps do quite a lot of volume around this particular alternative debt but we have been reducing this line of business because we think that is not sustainable. For our residential -- for our real estate investments, we are moving away from residential to commercial building where you buy, fix and sell, which is basically the strategy employed by leading alternative asset managers globally like Blackstone, like (inaudible). And so I am quite confident in terms of the long-term development of the wealth management and asset management businesses. And the multiple drivers in terms of the players in the market, the regulator as well as the end client, I think altogether will ensure that the market in China will grow in a healthy manner. Thank you.

(foreign language)

(foreign language)

So the follow-up question is, thank you for your comments, but I would like to ask specifically, is there any impact on the product that's currently under advisory? Is there any influences?

Madam Wang would like to highlight that we think the impact for our business is quite minimal. We have been transitioning our product type 2 years ago already. And so the regulatory shift in 2016, we think, is just the beginning. I think the regulatory will continue to catch up with the leading practices globally, and I think that is for the best.

Foreign language)

(foreign language) Other AUM (inaudible).

Other investments, other investments.

So again, for the benefit of the audience, I will translate the 2 additional questions from the investor. The first one is, I note from your filings that for wealth management segment, other revenues, there was a reclassification. Can you explain what the reclassification was? For Gopher AUM, we see an increase in terms of other types of investment. Can you also provide some color on what are the other types of investment that Gopher is managing?

So for the first question, for our wealth management segment, for other service fees, this is primarily revenues related to our new businesses that's complementary to our wealth management segment, for example, Enoch Education. Previously, there were some marketing sponsorship by our product providers, which we have put into other service fees, but we had, starting from this quarter, reclassified it to onetime commission because we think it's more related to the distribution of wealth management products and we wanted to have the other service fee to be more in line with our new businesses within the wealth management. In terms of your second question for Gopher's other type of investment AUM, this is a mixture of products that we are developing and includes multi-strategy funds, it includes discretionary funds and it also includes credit products that we are now developing and managing. And I think for any of these new product lines, if they get big enough, we will consider to break them out. Thank you.

This will conclude our question-and-answer session. I would like to turn the conference back over to Kenny Lam for any closing remarks.

Well, we can have another 10, 15 minutes if there are any more questions. Did I understand that we have taken a lot of time now in the prepared remarks. So maybe, we'll wait for 5 minutes and see if there are more questions.

Okay. We have another question, it's from Henry Liang with Goldman Sachs.

(foreign language)

Yes. So for the benefit of the audience, I would like to translate the 2 questions -- or 1 question from Henry of Goldman Sachs. So the question is related to the profit guidance for 2017. I note that the implied growth rate is 14% to 19%. Can you give us color on this guidance in terms of your expectation versus 2016 because I note that the growth rate is similar. The related question is can you give us some color in terms of performance-based fee income for 2017 and how is that related to the profit guidance that you are giving us in the latest filings?

Henry, maybe I'll use English, it's easier for everyone, yes?

Yes, sure.

I think the guidance -- we tend to give conservative guidance. You can see that every year, we've been beating our guidance for a good part of the last 4 to 5 years. '17, we expect to have better than '16 in terms of performance fees. But again, that -- we don't put that a lot into our guidance because that's subject to the market. But we do see a market that's actually performing better than the '16. So what you see in guidance is exactly the same as last year -- it's largely aligned with last year, maybe off by a few percentage points. But the idea is that we want to be conservative. There will be better performance fees expected but we don't put that in under -- we put it -- we don't put a lot of it in our guidance. We think our performance fees -- as more about the performance fee and how we budget the performance fee.

Yes, sure. I'll add some more color to your question. So I think generally, we tend to be a bit more conservative in terms of profit guidance at the beginning of the year. And as we've developed our -- or we actually progress throughout the year, we will update our guidance to the market as necessary. In terms of performance fee, I think I mentioned earlier in my prepared remarks that for the last 8 quarters consecutively, we have been booking performance-based income. And I think that is a function of the fact that we have a diversified product mix. Now obviously for 2016, the amount of performance-based income is not as robust as 2015 because 2015, we had a very strong public A share market, which we benefited from quite a lot. For performance-based fee income, we expect it to continue to be (inaudible) '17. In terms of the amount that we have budgeted, we err on the side of caution, given that the actual performances of the categories of products that we manage, whether it's public equity, whether it's real estate or private equity, there is a level of volatility and uncertainty. But I think that can potentially be a very big upside if the market develops well.

Just for the sake of comparison, last year, I think we gave guidance of a growth of 14.4% to 19.4%. This year, I think we gave a guidance of 14.1% to 18.9%. So essentially, they're about the same in terms of the expectation of growth. But as we say, I think we're even more confident than last year.

(Operator Instructions) And we have no further questions. (Operator Instructions) Our next question today is from [Katy Yuan].

(foreign language)

The question comes from [Katy]. And so I would like the management team to comment on the impact on our business, if any, in terms of the timing, conversion of ForEx for renminbi. Also, we have observed that for the last 2 years, overseas business has been growing strongly. What is our expectation for the overseas business? And lastly, the distribution insurance product has been a meaningful growth driver for the business the last 1 or 2 years, and how is that doing currently? And what is our expectation for 2017?

(foreign language)

Yes. So in terms of the tightening of conversion of renminbi, I think the impact on our business is -- should be manageable. The last 2 years, in terms of our business out of China and Hong Kong, that's primarily focused on clients who already have assets offshore. And I think that's a very large market in itself. Only for a brief period in time in late 2015 and 2016, we leveraged or capitalized on the various ODI program that was available, but the bulk of our offshore business is still primarily clients with offshore assets already. Now I think we have done a fairly good job the last 2 years in terms of getting our clients to be familiar with the products and services that we're able to offer globally. And I think we expect the growth rate or the growth trajectory for our global business to continue as we continue to put in more resources, not only Hong Kong, but opening up a U.S. office around August and September of last year.

Just to add one point, I think the slower flow of capital from China and global actually has led to an emotional reaction whereby our clients were actually more active in global investment. In our Hong Kong office, I think on a per month basis, we were fundraising around USD 100 million to USD 130 million, and that's all U.S. dollar investments of our clients that are already inside in China -- outside of China. So I think that we continue to see as a trend, which is our clients tend to have more U.S. dollar assets outside than we expected.

(foreign language)

Okay. Let me do the translation first. So in the prepared remarks that management team highlighted for Gopher Asset Management business, we expect more institutional investor participation. Can you give us some color in terms of expectation or goals or benchmarks? For wealth management, you highlighted that the strategy is enhancing client segmentation. Now for the ultra high net worth or high-end client, the black card client, what do you think will be the financial impact in terms of rolling this out?

(foreign language)

Yes, so for the first question, I want to highlight that high net worth individual is still a very important and the base of our client segmentation. With that said, we have been observing, in terms of market, especially the last year, institutional investors in China have been a lot more active in terms of the volume of investment and the participation in investments. Now just to give you some color for the recent fundraising for our renminbi flagship, private equity fund of funds and coinvestments, currently about half of the LPE are institutional investors, right? Now where previously it was mostly individuals. Now I have also mentioned, for our real estate investments, we have shifted from residential to more of a commercial buy, fix and sell strategy. Now in terms of the real estate commercial investment opportunities, we're seeing a lot more institutional interest as well. I think at the height of our real estate business, we had around about 100 billion of residential, and they were attracting mostly individual clients. But now as we shift into commercial building, I think the interest from investors is mostly institutional investors.

(foreign language)

Yes, I think it's still early days to quantify the financial impact in terms of our new client segmentation strategy for "black card clients" but I think the objective is quite clear. I think the objective is to deepen wallet share for the most wealthy families in China. We want to improve client retention in terms of this segment of clients. And so we'll be offering bespoke wealth management services and products, allowing them to have more customized, tailored products; providing more value-added services, both in terms of estate planning, family trust, in terms of tax planning. And I think with a bit more time, I think we'll be able to quantify and share with the domestic community the financial impact. But I think we are quite optimistic that I think this will be a very important strategy for us, not only in 2017, but going forward as well.

Why don't we take one more question? I think we have one more.

Yes, the next question today is from Stephen Ju with Crédit Suisse.

(foreign language)

So let me translate the question first. So the question comes from Stephen Ju of Crédit Suisse. My question is more of a macro question. There is expectation for interest rate to increase in China. What will be the impact for our wealth management business? How about client return expectation, if management can provide some comment on this.

(foreign language)

Sure. I think in terms of the changes in the interest rate environment in China, I think the impact will primarily be more pronounced in terms of standardized bond funds in China. I think we have been focusing more on alternative investment and specifically, the equity investments in China. So I don't think the impact will be so significant. In terms of clients' return expectation, I think in China, if we look several years back, 5 years, 6 years back, clients' return expectation was much higher than their counterparts in developed markets. And I think the return expectation has become more rationalized or been coming down because of the excess liquidity in the market, there is more risk that have surfaced. And so the last few years, we have seen clients' return expectation come down. So in China, I think the clients' return expectation have not been so correlated to the interest rate environment or the interest rate movement in China. Thank you.

Great. I think let's end it -- our session. I think if you have more questions, please write to us, call us. We will also have individual conversations as we go through our discussions in the next 2 weeks. Thanks so much, everyone.

Thank you.

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