Noah Holdings Ltd (NOAH) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Noah Holdings Limited First Quarter 2019 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. After the U.S. market closed on Thursday, Noah issued a press release announcing its first quarter 2019 financial results, which is available on the company's IR website at ir.noahgroup.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 differ materially from any forward-looking statements that 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 subject to adjustments in connection with the completion of the company's audit. Additionally, certain non-GAAP measures will be used in our financial discussion. A reconciliation of GAAP and non-GAAP financial results can be found in the earnings press release posted on the company's website.

With that, I would now like to turn the conference over to Shang Chuang, Noah's Chief Financial Officer. Please go ahead.

Thank you, operator. I want to welcome all our investor and analyst friends to our earnings conference call today. For today's agenda, Mr. Yi Zhao, Group President of Noah, will briefly summarize Noah's overall performance for the first quarter 2019 and then discuss our strategy in improving operating efficiency; Ms. Jingbo Wang, Chairlady and CEO of Noah, will then speak about each of our product segments as well as provide our overall views on the current industry and regulatory environment. I will follow up with a detailed discussion of Noah's first quarter 2019 financial performance. We will conclude the call with question-and-answer session.

Now I would like to turn to Mr. Yi Zhao for his prepared remarks.

[Interpreted] This is my first earnings conference since taking Group President. As a long-term employee who has been with Noah for 8 years, the transition during this past few months was very smooth. After a comprehensive and systematic review of the group's business and operation, we formulated short-term and medium-term goals and the strategies in a short time. And after a quarter of execution, we have already achieved the initial results. Today, I am very pleased to share with you the operating and the financial results we achieved in the first quarter. In the first quarter of 2019, Noah group achieved a net revenues of RMB 890 million, up 7.1% year-over-year and 8.2% quarter-over-quarter. Non-GAAP net income attributable to shareholders reached RMB 300 million, up 19.9% year-over-year and 36.5% quarter-over-quarter. It is particularly noteworthy that the non-GAAP net margin reached 34.2%, the highest quarterly margin for the past 3 years. Although there was only small amount of performance-based income recognized for the quarter, we maintained revenue and the profit growth through the combination of different product and revenue mix as well as effective operating strategies.

In terms of business performance, in the first quarter of 2019, we distributed RMB 28 billion worth of wealth management products, flat compared with last year, and up 11.4% from last quarter, indicating a recovery of investor confidence. The effective onetime commission rates reached 1.16%, in line with our overall productive strategy. The number of registered wealth management clients reached 275,000, up 39.6% year-over-year and 5.6% quarter-over-quarter. As we expanded product lines and in particular, increased the sales of public offering funds, the number of active clients increased to 8,117, up 49% year-over-year and 72.1% quarter-over-quarter. As of the end of the first quarter, the AUM of the asset management segment increased by 9% year-over-year, reaching RMB 171.1 billion, of which the AUM of private equity investment funds reached RMB 101.1 billion. From 2019, we officially renamed the segment of other financial service to lending and other business. In the first quarter, our lending company, Noah Financial Express, originated loans of RMB 2.5 billion, up 17.2% year-over-year. The net revenue of lending and other business reached RMB 98.6 million, up 136 -- 132.6% year-over-year. It is the first time for this segment to return a substantial profit, with operating profit of RMB 45.2 million.

Meanwhile, Noah's overseas business also continued to develop. As of the end of the first quarter, the overseas asset under management reached RMB 24.7 billion, up 15.6% year-over-year. Total revenues of our office in Hong Kong, the United States, Canada, Australia and other countries reached RMB 250 million, accounting for 27.8% of the group's net revenues. Our global comprehensive service system, including insurance brokerage in Hong Kong, the United States and Canada, family trusts and the investor education in China and overseas and et cetera, is gaining more and more recognition from clients and also delivering increasing synergies with traditional financial product sales system. In the first quarter of 2019, the number of clients receiving Noah's value-added service increased to 1,400, up 40.6% year-over-year.

Improving management's operating efficiency is an important strategy I put forward at the group level since I took this new role. In the first quarter, we mainly focused on this aspects and we made important progress.

First, structural adjustment. Eliminating ineffective departments, merging overlapping departments and upholding flat management. In the first quarter, overall sales and the G&A expense decreased by 8.8% year-over-year and 25.4% quarter-over-quarter, which significantly improved the operating profit margin.

Second, talent upgrade. Maintaining elite culture and improving assessment standards. Each department and the subsidiaries shall establish its own talent profiles. Conducting quarterly performance review and adjust the unqualified staff in a timely manner. In the first quarter, the number of relationship managers decreased by 5.5% from the previous quarter. However, the elite ones were all retained. Compared with the last quarter, the total staff number of the group decreased by 2% and the labor cost decreased by 5.6%, correspondingly.

Third, information technology development, developing system tools and empowering business scenarios. In the first quarter, our relationship management system and the client mobile application, Micro Noah, were upgraded in all aspects. We lead in domestic wealth management industry in achieving online audio and video recording, which quickly improved the sales compliance and optimized the client experience. In addition, we launched an online relationship manager plus expert servicing core model in 4 core pilot cities. Based on different scenarios and the client needs, we formed the expert teams composed of relationship managers, product experts, investment consultants, mid- and back-office support personal and et cetera, so that service are provided through team collaborations instead of single relationship managers to meet increasingly specialized and the diversified needs of clients. Last year, Gopher developed a fully autonomous investment management system or [GIMSP], which clearly demonstrates the status of all funds and their sub-funds and the subprojects, while closely tracking top-down valuation through a fund ranking system.

Fourth, system construction, setting up an operation management system, covering 15 important operation modules and the developing management tools and assessment system with a focus on data indicators. Through quarterly reviews and annual assessments, we consistently adjust and optimize our systems to improve the operation and management of the whole group.

For the second quarter, we will push forward the organizational restructuring and talent upgrade, and implement a series of group level management system, featured with data model, for monitoring and evaluating the operational efficiency of each business segment. We are even more confident about 2019.

Focusing on creating values for clients is Noah's principle, and continuous optimization in response to client needs is Noah's direction. As the market environment becomes increasingly uncertain, Noah will continue to build and improve management operating systems and enhance capabilities in research, investment, product development, sales and the comprehensive services, so as to become an open and global integrated financial service company with [signed tech teams].

With that, I would like to turn the call over to Noah's Chairlady and CEO, Ms. Wang Jingbo. She will speak in Chinese and her remarks will be followed by English translation.

[Interpreted] Thank you, Zhao Yi. In the first quarter of 2019, China has been adopting favorable macro policies, specifically maintain a relatively liquid monetary policy, and the Asia market performed strongly in the backdrop. Looking at current economic data for Q1, including GDP, foreign trade, finance and other metrics, the economy outperformed expectations as a whole, and operations of private enterprises have also improved at a certain extent. For China's wealth management and asset management industries, 2018 was a year of adjustments. According to the latest China Private Bank Report 2019, jointly issued by Boston Consulting Group and China Construction Bank, despite the ongoing growth momentum in total wealth of domestic residents, the growth rate in 2018 was only 8%, significantly dropping behind the compound average growth rate of 16% during prior 2013 to 2017. Domestic high net worth individuals with investable financial assets over RMB 6 million only increased by 6% in 2018. Moreover, with increased complexity in the domestic economic home funds and foreign trade frictions, investors' aversion to risk increased significantly. At the same time, individual investors' understanding of risks and rationality of investment are going through the volatile market, and their long-term expectation of investment return is normalizing with the adjusted market conditions.

Meanwhile, the same China Private Bank Report 2019 also estimated that during the next 5 years, the investable financial asset of Chinese individuals will recover to a compound growth rate of 11%. Specifically, for high-net-worth wealth individuals, where their invested asset transferred continuously from real estate properties and corporate direct investments to financial assets, the compound growth rate of their investable financial assets will exceed that of the industry to 16%. So we strongly believe that asset management industry will continue to be attractive in China. Combining the asset management with wealth management business has better positioned Noah with higher profitability and less vulnerability to economic cycle. With a majority of all stakeholders in these 2 industries mingled with the ongoing wealth accumulation brought by stable macroeconomic growth, the increased investment in financial assets promoted by the aging population as well as the technological innovation accelerated by the Internet, the overall asset allocation demands, including their global asset allocation demand, has been and will continue to be of utmost important to domestic clients.

Now let me share with you some updates of our product strategy. In terms of the primary market, by the end of the first quarter of 2019, the AUM of Gopher's private equity investments reached RMB 101.1 billion, up 10% year-on-year. Since the beginning of 2019, the domestic private equity market has remained sluggish in terms of fundraising, investment and exit, similar to 2018. Our strategy for this year is to still focus on offering first-year funds, enhancing fund of funds operations, and keep improving direct investment capabilities. Over the past 8 years, Gopher has invested directly and indirectly in over 210 funds and over 4,800 enterprises, among which more than 160 enterprises have been successfully listed at home and abroad, and 78 has grown into unicorns valued at over USD 1 billion. We believe that as the system construction of China's capital market continues to improve, especially with the founding of registration system for public listing on the Science and Technology Innovation Board, China's private equity industry will establish a smoother exit mechanism, and Noah will be one of the beneficiaries.

In a public market after the Spring Festival of 2019, the Asia market has embraced a bounce and investors risk appetite has gradually picked up. Beginning this year, we have integrated online and off-line transaction channels and focused on mutual fund distribution through our wealth management sales team together with traditional private funds. Total transaction value of Noah's public securities products, including mutual funds, has rebounded to RMB 3.2 billion in the first quarter, up 125% sequentially. The AUM of Gopher's public securities investment has also picked up in the first quarter, reaching RMB 6.9 billion and up 11% quarter-over-quarter.

In terms of credit funds, we believe that individual clients have a strong demand for fixed income products with low correlation with the stock market. On the wealth management front, we continue cooperating with leading product providers, and the credit funds raised in the first quarter were amounted to RMB 22.1 billion, up 67% year-on-year and 9% quarter-on-quarter. On the asset management front, the AUM of credit products by the end of the first quarter stood at RMB 38.8 billion. While retaining existing products and counterparties, we adopted new strategies since the second half of 2018, delivering standardized bond funds and public ADS funds, all investing in publicly traded credit securities to increase the breadth of available product.

At present, a complete credit product line has been established with renminbi and U.S. dollar products, flexible terms and stable returns. In 2019, we are focusing on both the scale and the performance of our bond portfolio funds, and this strategy has been attracting increasing attention from both institutional and individual clients. In terms of U.S. dollar denominated bond and cash management funds, we have developed a full product line actively managed by Gopher. Specifically, our flagship U.S. dollar global bond fund has ranked in the top 5% amongst its peers with respect to its performance since inception in August 2018. In terms of renminbi products, by the end of the first quarter, Gopher's total AUM in renminbi bond funds has exceeded RMB 1 billion, and its AUM of cash management funds exceeded RMB 5 billion. We believe that in the future, standardized bonds will become an important portfolio asset for individual investors, and we're fully prepared in this regard.

In terms of real estate funds, by the end of the first quarter of 2019, AUM of Gopher Real Estate Investments reached RMB 17.4 billion, up 46% year-on-year. In retrospect, Gopher's real estate preferred share funds, which were mainly fundraised in the second half of last year, has exceeded RMB 4 billion in scale and has invested in 15 projects as of the end of the first quarter. Meanwhile, projects invested and managed through our core asset acquisition funds are still operating soundly. The occupancy rate of the office building and commercial properties in Shanghai Gopher Center, reached 95% and 100%, respectively. Gopher Shanghai Plaza will also be reported for official completion in June 2019. Against the background of the continuous influx of foreign capital to acquire China's core assets as well as gradual transition of China's real estate industry from an incremental market to a stock market, our extensive experience in real estate investment as well as operation and management are showing their value.

From the first quarter of 2019, we officially changed the name of the strategy other investments under Gopher's AUM to multi-strategies investments, which represents our progress and achievements in promoting discretionary multi-asset funds and family office businesses. By the end of the first quarter, the AUM of Gopher's multi-strategies investment reached RMB 6.9 billion, up 92% year-on-year. While attracting the same client investments our 4 discretionary asset allocation capability has also won recognition by global professional institutions. Gopher Asset was recently granted Best Wealth Manager in China, Discretionary and Segregated Portfolio Management by Asian Private Banker as well as the Insights and Mandate 2019 Professional Investment Award, China multi-asset strategies, 3 years and global multi-strategy, 3 years.

In reviewing 2018, we believe that we now have an even better understanding of our client demands with a core competency that was accumulated over the past 15 years. In terms of product strategy, we believe that in the long-lived bull and short-lived bear market, such as U.S. market, buy and hold of blue-chip stocks as a suitable strategy for asset managers. However, emerging markets reach a high volatility of individual stocks, wide fluctuation ranges in stock price and rapid rise and collapse of valuation, resulting in significant systematic risk. Therefore, simply holding stocks is not the optimal wealth management strategy for emerging markets, while the allocation strategy among multiple asset classes provides more sustainability. Our advantages stand out in a market competition in terms of the investment and allocation capabilities of relevant assets, such as stocks, equities, bonds, real estate, asset-backed securities, cash management products and others.

Finally, I would like to talk briefly about the industry and regulation environment. Since 2019, China has continuously opened up the onshore financial market for foreign institutions to acquire financial licenses. With increased competition from strong foreign peers, domestic wealth management and asset management firms are facing both opportunities and challenges. And we also believe that this trend will influence China's wealth management and asset management industries in several aspects. First, capital pools and implicit guarantees will no longer exist. Equity, portfolio and NAV-based products will gradually dominate the market, and unlicensed noncompliant institutions will be weeded out. Second, investors will diverge. Without the protection of guaranteed returns, investors with low risk tolerance will have to leave the capital market and return to banks, while more sophisticated investors will make long-term investments in asset management products.

Third, the business models of wealth management and asset management institutions will transform from competition in licensed resources, rule speculation and regulatory arbitrage, to competition in investments, management and marketing capabilities. With the implementation of the new asset management guidelines, the clarified direction of supervision and the continuous opening of financial service market to foreign investors, China's asset management and wealth management industries are going towards a healthier and more standardized development that is in line with international rules.

For Noah in 2019, we define our core businesses as wealth management, asset management, lending service, insurance brokerage as well as global value-added financial services for high-net-worth clients. Our objective is to keep the same growth of clients and AUM scale. In the wealth management segment, we will continue to build our capabilities to serve high-net-worth Chinese in a global scope, improve and optimize our relationship manager team, and expand our client base. In the asset management segment, we will focus on improving our capabilities in multi-asset allocation and provide comprehensive asset allocation services for high-net-worth and institutional clients. Meanwhile, we're also seeking for external distribution channels for Gopher's asset management product to drive its multidimensional growth.

Currently, Gopher has been included in the wide list of several large-size securities firms and banks. In terms of providing more value-added financial services, we're mainly targeted in creating more client touch points and cross-selling opportunities. With a sustained dedication in 2019, we are confident in maintaining efficient operations and quality growth as always.

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

Thank you, Chairlady. We are pleased to report a solid set of financial results for the first quarter of 2019. Both net revenues and non-GAAP attributable net income reached historic highs on a quarterly basis. Total net revenues were RMB 889.9 million, an increase of 7.1% year-over-year and non-GAAP attributable net income was RMB 304.6 million, up 19.9% year-over-year. In terms of revenue mix, we achieved onetime commissions in RMB 324.6 million, up 2.1% from the same quarter last year and up 33.6% from the last quarter. The strong sequential rebound was mainly contributed by an 11.4% quarter-over-quarter growth of transaction value, reaching RMB 28 billion as well as improvement of an effective onetime commission from 0.97% to 1.16%, mainly contributed by the increased distribution of insurance products.

Reoccurring service fees in the first quarter of 2019 were RMB 420.6 million, up 5.7% from the same period last year, accounting for about half of total revenues. For foreign-based income, RMB 4.9 million, was significantly lower than the first quarter last year because most of the public securities products have not exceeded high watermark of last year, and there were no significant exits by other products.

Other services are RMB 145.4 million, primarily driven by our lending services business as well as the increased demands of value-added services that we provide in the wealth management business. In the first quarter, total operating income increased 10.2% year-over-year to RMB 302.5 million. With operating efficiency enhancement measures, our operating margin increased to 34.2% from 33% a year ago. Total compensation costs were RMB 404.3 million, up 12.1% year-over-year, but down 5.6% quarter-over-quarter, as we optimized our employee base. Our selling expenses were RMB 90.5 million, down 14.9% year-over-year and down 13.7% quarter-over-quarter. General and administrative expenses were also well controlled during the quarter. The amount of RMB 58.6 million, represented a 4.7% increase year-over-year, but 38.3% decrease quarter-over-quarter.

Non-GAAP attributable net income for the first quarter was RMB 304.6 million, a strong increase of 19.9% year-over-year. This quarter, we adjusted out RMB 29.6 million of share-based compensation, RMB 8.7 million of gains from unrealized fair changes of equity securities and RMB 5.7 million of tax effects of adjustments and adjusted RMB 4.9 million of gains on sales of equity securities.

On the balance sheet side, the company increased cash and cash equivalents by RMB 165 million this quarter. Operating cash flow generated by core businesses remained strong as RMB 152.7 million.

And in summary, we continue to grow our business despite market uncertainty. Looking ahead, we see huge potential in both wealth and asset management industries in China. And we are dedicated to creating values for our clients as well as shareholders.

With that, let's open up the call for questions. Operator?

(Operator Instructions) Our first question is from Edward Du with Deutsche Bank.

This is Edward from Deutsche Bank. I have 2 small questions. The first question is about, just saw your active client increase by around 49% year-on-year, but the total transaction value was up only 1% in first quarter, and making the average transaction decline by around 32% year-on-year. And my question is about, may we know is there any transaction behavior change among your client base or any reason behind this? And my second question is about the distribution fee. And based on my calculation, your distribution fee rate came around 120 bps in first quarter. But we do not see any meaningful change in your product distribution mix in the first quarter compared to fourth quarter last year? And may we know any pricing structure change, especially in the fixed income product and the secondary market product? And that's all my questions.

Yes, sure. Thank you, Edward. I will answer both of your questions. So the first question is regarding active client transaction value as well as average transaction value per active client. So for the first quarter of 2019, one of our strategy was actually to activate or get more of our client base to transact on product. And we were able to do so by broadening the type of product that we have conversations with, with clients. And in the first quarter versus last year for 2018, we engage clients with mutual funds, and we feel that by broadening our asset categories to include public securities or wider categories of public securities, we can engage deeper with our clients and that I think worked quite well. And so going forward, I think both on the wealth management side and asset management side, we see opportunities for us to deepen wallet share by expanding into public securities. Okay. So that's for your first question.

Regarding your second question is, yes, for the first quarter of 2019, effective onetime commission rate was up meaningfully to around 1.16%. This is up year-over-year as well as quarter-over-quarter. I think there are 2 main reasons. So the amount of insurance distribution from first quarter was actually quite robust. In addition, amongst the credit products that we distributed for the first quarter 2019, a portion of it were more longer-term fixed income product and -- for more longer-term fixed income product we're able to achieve the revenue all up front. So those are the 2 main reasons why we saw effective onetime commission rate is up, but it's still within very long-term range of 80 basis points to 120 basis points. And so the change is mainly because of product mix, rather than any structural trend going forward.

The next question is from George Cai with JPMorgan.

Congratulations on management for the results. I have 2 questions. The first one is on the private equity sales. As we can see from the first quarter, I think the private equity product sales has been quite weak as well compared to the last quarter and on a year-over-year basis. So can you share with us more color on potentially when PE sales could rebound. So that's my first question. My second question is relating to the lending and other business. As we can see, the revenue growth has been very, very robust, and we achieved a very sizable profit. But then we want to ask on the loan book, what's the current status of the asset quality? And any -- what's the provision ratio? And I understand this is more for internal client lending, but just want to ask, if we have cooperated with other banks on a co-lending side? So these are my 2 questions.

Sure. For the first question regarding private equity, perhaps -- I'll allow Madam Wang to speak about that, and then I'll answer, George, second question regarding our lending business.

(foreign language)

[Interpreted] Yes. So I'll translate on Madam Wang's answer for the first question. So regarding the new fundraising for private equity, overall in the market is still quite soft. It's mainly regarding the pace of exits by previous funds. As we see in the market general, capital market activity has been sluggish in terms of new IPOs and new exits. But we do see a silver lining as top-tier GPs are still able to exit their very top portfolio company. So our strategy in terms of private equity continues to be focusing on top-tier funds, our fund-of-funds business as well as expanding the amount of co-investment and direct investment. And so we believe our focus will allow us to capture growth opportunity and private equity on a long-term. And the short-term challenges and difficulties is mainly regarding investors being reluctant to make a very long-term investment versus hedge funds or public securities, given there are still a bit of uncertainty in terms of the macro environment. So that's Madam Wang's response to your first question.

Regarding the second question regarding our lending business, Madam Wang just wanted to add some high-level comments that the lending business, she believes is an important complementary business to our wealth management business. And in terms of our high-net-worth individuals using financial products or real estate to achieve -- to obtain short-term loan. We see it to be a synergistic to both of our core businesses. Now specifically regarding George's question in terms of some of the metrics for our loan business, if you -- people can take a look at our balance sheet. As of the end of the first quarter, the loan receivables that are -- that's on our book is around RMB 507 million. I want to take this opportunity perhaps to describe the way our lending business works. So we would originate loans to our high-net-worth individuals, and most of the time they would have high-quality collateral. And the average duration is around 9 to 12 months. After originating these loans, we will sell or securitize these loan receivables, so then they are sold to investors. And we continue to serve as the servicing agent in terms of the collection and the passing of interest and principal, but we're no longer liable for the financial risk. So it's generally still, an asset like business, if you may. In terms of the loans that we're servicing it's roughly about RMB 10 billion. So for the loans on our book actually, we have 1% NPL provision, but historically the last 2, 3 years, we have not seen any meaningful default. The main reason is because of the high quality of the borrower as well as the soundness of the collateral that we have when we make that loan -- when we make those loans.

Operator?

The next question is from Stephanie Poon with Citi.

So first question is regarding your product mix or your product strategy. So we understand that like traditionally, the alternative products has been your core strength, like for example, on the private equity or some nonstandardized credit side. But as you are now expanding into this standardized credit product for these mutual funds, it seems to be a more competitive area that we see a lot of other traditional banks or brokers there also over in these products. So can you share with us more about like what you see as your competitive edge here on these standardized products? And also as you like expand into this product category, does it also means that you're penetrating into maybe a lower tier client base?

And the second part -- or the second question is regarding your asset management distribution channels. You mentioned earlier that you are expanding into some non-Noah distribution channels. Can you share with us like any specific channels that you have currently? And what is the percentage exposure there? And also in terms of the positioning of this asset management business going forward, I guess, in the past we used to understand it more as a supplementary of your whole wealth management product -- business to serve your existing high-net-worth individuals clients. But going forward, should we see it as maybe more stand-alone business segment that you are also expanding into some like external client base? So that's my -- all of my questions.

Thank you, Stephanie. Just for the benefit -- of my colleagues who are also on the phone. I just perhaps just quickly, summarize the 3 questions you raised. One is regarding our public securities products, specifically mutual funds, how that will impact our business. Second is regarding Gopher Asset Management expansion into non-Noah distribution channels. And third is asset management positioning going forward. I will answer these 3 questions and see if Madam Wang and Mr. Zhao has anything to add.

So regarding the first question, as you know and many of our shareholders are aware, Noah has been or -- and will continue to be a firm believer of asset allocation. Over the last 10, 12 years, we have consistently expanded in terms of the product category and investment strategies that we are able to offer and manage for our clients because we believe a true diversified asset allocation is the best way for high-net-worth individuals to ride through capital market volatility. And we believe mutual funds should be an important aspect of that toolbox or an important tool in the toolbox. And if you look at leading private bank, for example, UBS, their high-net-worth individuals have 20% to 40% allocation in mutual funds. So specifically on this particular strategy, it's actually in line with our long-term strategy of deepening client wallet share, rather than us expanding into mass retail. So I just wanted to clarify in terms of our approach for some mutual funds. So how do we get more of our existing clients' wallet share? How do we have or engage more client to transact with us? So that's the reply for #1.

And trying -- #2 as Mr. -- as Ms. Wang mentioned, for Gopher, I think we have always been seeking ways to broaden the capital sources for Gopher. We have had some success with large insurance companies, but we also see opportunities as Gopher established more track record as well as expertise across investment strategies. And most recently, we have very good progress in terms of mid- to large-size securities firms and in terms of become -- getting on their preferred list in terms of distributing Gopher's public securities products, i.e. client hedge funds or others -- in quant funds. And we see as the capital market continue to develop in China, we want Gopher to be able to grow its AUM from all these different sources. And I guess, it's tied to your third question in terms of the long-term positioning of Gopher. I think a very good example would be globally we see a lot of private banks when -- in its early stages will incubate an asset manager, but as the asset manager grows and expand its business, it become quite fairly independent, i.e., their capital sources comes from institutions, come from other distributors. A reference is I believe, last time when I spoke with my peers at UBS asset management, about 20% to 30% of their capital comes from UBS private bank, i.e., more than a half, 70% comes from non-UBS private banking sources. And I think that is a good role model or an example of what Gopher can achieve as Madam Wang mentioned in her prepared remarks, and we continue to believe. So asset management in China is still very early days. If we use a baseball analogy, it's probably only in the second or third inning. So the future growth potential is quite huge for Gopher. And I believe Madam Wang has things to add as well. (foreign language)

(foreign language)

[Interpreted] Yes. So let me translate Madam Wang's commentary on the question. So for Gopher, since the establishment in 2010 over the last nearly decade, I think we have accumulated expertise in the various investment strategies that we operate in. And most importantly, we have now seen the benefits of being an expert in terms of asset allocation and a diversified solution provider. What this means to our investors is delivering low volatility, as the various investment strategies have low correlation to each other. Now we will continue to expand Gopher based on fund of funds, co-investment and direct investment with the goal and intention of delivering absolute return to our investors. And we believe we are able to do so by executing on our multi-strategy effort. Now based on various data that we have accumulated over the years, as well as our recent conversations and surveys with our clients, we believe that we are very well positioned to be the leading brand for multi-strategy in China. And in terms of the asset manager for alternative. So now adding some comments on our expansion into public security, again, I want to emphasize this is part of our asset allocation approach. It's not aiming to expand into new client segmentation, but rather how do we use new tools to cross-sell to existing high-net-worth clients.

Now for the first quarter, I think we had -- have some efforts in terms of mutual funds fundraising. And historically, we have done a mutual fund of funds on an asset management basis. So we are actually quite familiar with this asset category and for some of the funds that we were focused on fundraising in the first quarter, the fundraising size that we achieved is actually similar to some of the mid to large banks -- in the banks. And this just shows that the potential of our clients in terms of this asset category, the average transaction per client in the mutual funds for our client base is much higher than the banks. Now we are confident in terms of getting non-Noah channels or distributor to distribute Gopher asset. As Shang mentioned, there are a lot of asset management firms globally that have originated from wealth management roots but have grown to be very sizable. And their reliance on their existing private banking partner with -- it's now only 10% to 20%. So in other words, as Gopher develops, the potential from non-Noah channel should be even larger than the amount coming from Noah currently today.

Operator?

Yes our next question is from [Yuan Xue] with CICC.

(foreign language)

For the benefit of the audience, I will translate the question from the research analyst from CICC. So I know from the quarterly disclosure that the company has for the first time disclosed segmentation by geographic location, and we see for the first quarter 2019, revenue coming from others or other regions have made good progress. And if you can give us more color on that? And so I will comment on this question and see if my colleagues have anything to add. But over the last 2 years and then we continue to express our views to the capital market is that we want to build a global business. And since the establishment of Hong Kong -- of our Hong Kong business in 2012, we have continued to make good progress. As of the first quarter of 2019, our overseas markets have contributed roughly about 25% of total revenue. And over the next 2 to 5 years, we continue -- we want to continue to grow that percentage. Now as you know, we set up our business in the U.S. roughly about 2.5 years ago, both in Silicon Valley and New York. Both of these offices and the teams are focused in terms of product sourcing and developing products. And so we're now able to offer VC fund investment opportunities, co-investment and direct investment opportunity as well as U.S. insurance products to our clients. And so it's an example of how we replicate our success in Hong Kong to other large capital market or large markets elsewhere in the world. We believe our clients are becoming more globe -- more mobile and global. So our investment in terms of building a global presence will benefit us in the long term.

Our next question is from George Cai from JP Morgan.

I have a follow-up question. I think on the net profit, there is quite a large gap between the GAAP net profit and non-GAAP profit. The large chunk of it I think is related to the gain -- unrealized gains from the fair value change of equity securities. So could you add more color on this? And going forward, do you expect the volatilities could be smaller?

Yes. Thank you, George, for the question. If you note on Page 17 of our 6-K or quarterly disclosure, we break out the details of our GAAP net income and non-GAAP net income. The largest adjustment's actually share-based comp, which is quite in line with how other listed company define non-GAAP net income. And part of it -- the other part of the adjustment comes from fair value changes of equity securities are unrealized. And you can define this or interpret this as that basically mark-to-market of equity securities that we hold and the market have been a bit volatile. And so we adjust out those noises, and then we add back in unrealized gains and there is a detailed breakdown, so I won't read the numbers one by one. Yes.

Operator?

This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.