Noah Holdings Ltd (NOAH) 2021 Q4 法說會逐字稿

Good day, and welcome to the Noah Holdings Fourth Quarter 2021 Earnings Conference Call.

(Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Chairlady Wang. Please go ahead.

(foreign language)

[Interpreted] On today's conference call, first, I'd like to talk about my observation of the micro environment then report on Noah's overall results in 2021 and performances of major business segments. Our CFO, Mr. Pan Qing, will then introduce detailed annual financial results of the company, followed by a Q&A session.

Looking back on the past year, we once again experienced the complexity and periodicity of the financial market. In China, the wealth management and asset management industries have undergone paradigm transformation. The industrial changes, business ecology and characteristic positioning are different from those in the past. The industry has ushered in an inflection point in the evolution of business model. The loose supervision cycle ended and sales orientation became the past. The underlying assets provided by domestic private banks to clients migrated from [real estate bonds] to NAV-based [funds], embracing the era of equity products. We believe that we must replace the sales mindset with a client-centric one in order to survive the competition. Investors and practitioners have been gradually maturing. The aging population and increase of residents' wealth is helping in continuous growth of the industry.

All these developments show that China's wealth management industry is developing steadily and healthily. At the same time, the inflation of risky assets is prevalent across the globe due to the quantitative easing policy and surplus of liquidity that have persisted for a long time. The reversal of quantitative easing will change regulatory models and market valuations of many industries.

Over the past 10 years, China's economy has achieved remarkable growth, but there are also certain major structural issues that concerns the market: shadow banking, real estate imbalance, financing platform, industry with overcapacity as well as resource industries with high pollution and high energy consumption. After a [long-term but firm] adjustment, we can say that in 2022 the shadow banking, real estate and government invisible liabilities that the central bank worried about in the past have been [collected].

China's micro strategy of steady growth and structural adjustments have achieved good results. In 2022, China's economy will further return to real economy. The manufacturing industry will be upgraded [intuitively]. The industrial competitiveness will be significantly improved. Small- and medium-size enterprises will continue to be active and enjoy a low tax rate. Manufacturing, export and key supply chains have shown strong resilience and vitality. China's private enterprises pay more attention to high-quality development and begin to seek benefits in management. These findings allow us to have full confidence in China's economy and the market.

While the ongoing Russian-Ukraine war is [worrying], we can be sure that in this process the market will continue to fluctuate from the perspective of understanding the financial needs and wealth sources of the market.

In the first strategy report of Noah [CIO] office in 2022, we plan to suggest our wealth management clients to adopt the strategy of protection before growth: first of all, actively check the asset allocation of themselves and their family and make sure of asset protection and asset safeguard; secondly, further balance their global asset allocation and consider the long-term situation of expected currency issuance and inflation in the secondary market -- primarily utilizes multi-strategy portfolio allocation strategy in the primary market, adopts the strategy to pay more attention to the cross-cycle early investments in [high] technology.

(foreign language)

[Interpreted] In 2021, Noah made a great step forward to successfully transform from nonstandardized products to NAV-based products and further optimize the asset allocation for clients. We also internally and structurally promoted the transformation from product-driven to client centric. Despite the impact of the epidemic, Noah still achieved unprecedented growth in terms of net revenues, non-GAAP net income, the number of black card and diamond card clients and the number of active clients in 2021.

Throughout the year 2021, Noah achieved net revenues of RMB 4.3 billion, an increase of 30% year-on-year; and achieved a non-GAAP net income attributable to shareholders of RMB 1.4 billion, an increase of 22% year-on-year, which is also 14.4% higher than the annual guidance. Despite the effects of the epidemic and volatilities in the market, our net revenues and net income both hit record highs. We believe that our success of business is inseparable from the trust of our clients. Currently, Noah's asset under advisory is approximately RMB 280 billion, over 85% of which are private equity and private secondary products with lock-up periods.

With respect to the overseas market, in 2021, we reported a net revenue of RMB 1 billion, a 38.6% growth year-on-year and a 7% growth compared with 2019, indicating the performance of the overseas market has rebounded to the pre-epidemic levels. Onetime commissions, management fees and performance-based income increased by 43%, 4.4% and 243% year-on-year.

Overseas transaction value reached RMB 14.3 billion, a big increase of 61% year-on-year. The overseas AUM was RMB 28.4 billion, accounting for 18.2% of the total AUM of the group, representing an increase of 14% from the end of 2020. Thanks to Noah's overseas colleagues for their outstanding achievements under the influence of epidemic.

(foreign language)

[Interpreted] In terms of core business data, the net revenue of wealth management segment reached RMB 3.2 billion, up 35% year-on-year. The transaction value of financial products was RMB 97.2 billion, a slight increase of 2.6% year-on-year, among which private equity was RMB 18.1 billion, up 1.1% year-on-year. Private secondary funding standardized product was RMB 37.8 billion, up 7.6 -- 7.4% year-on-year. Mutual fund was RMB 37.2 billion, a slight decrease of 2.1% year-on-year. Affected by the risk aversion of clients on the market fluctuations in the second half of the year, the transaction value of other comprehensive services such as insurance products reached RMB 4.2 billion, a year-on-year increase of [35%].

In 2021, the high-net-worth clients of Noah continued to grow and remained active. The number of total active clients, including mutual fund-only clients, exceeded 42,000 people, up 25% year-on-year. The aggregate number of black card and diamond card clients increased by 18.2% in the year, of which the number of black card clients increased by 38% and diamond card clients increased by 14%, a growth that exceeded our expectations. The fact that the 3 main categories of client number reached record high again indicated our client-centric transform has been well received by our clients.

The transformation of our marketing strategy gave birth to the Noah Triangle service model, which focuses on coordinated business development and professional specialization. It's proved to be effective in upgrading our service quality and enhancing client stickiness. In 2021, we also launched the [Smile] treasury, a SaaS platform to connect small- and medium-sized enterprises and allow them to buy mutual funds with tailored treasury services for convenient online cash management, with aim to help improve the investment and operating efficiency of corporate cash and to satisfy their needs for working capital management. By the end of 2021, Smile treasury covers 95% of the mutual funds and 90% of the mutual fund managers in the market, serving institutional clients from 14 industries, including real estate, finance and technology.

(foreign language)

[Interpreted] The asset management business reported a net revenue of RMB 1.04 billion, an increase of 19% year-on-year. Gopher's AUM increased slightly by 2%, reaching RMB 156 billion, with continued optimized asset mix. To be specific: The AUM of private equity was RMB 131 billion, up 11% year-on-year. Public securities was RMB 11 billion, up 13.4% year-on-year, while real estate assets decreased by 48% year-on-year to RMB 6.6 billion, including U.S. rental apartment funds.

Gopher's asset structure has been continuously optimized, now healthy and in line with expectations. For public securities, by the end of 2021, Gopher's standardized product has delivered steady investment performance. Among them, the annual return of Gopher [mega trend] MoM, manager of managers, fund was 14.2%, exceeding the benchmark return rate by 9% during the same period. Gopher's top 30 fund of hedge funds posted an annual return of 13%, beating the benchmark rate by 4.5% during the same period. Gopher's overseas selected [U.S. dollar funds] annual return rate was 16%, exceeding the benchmark by 10.5% during the same period. It is worth mentioning that Gopher's well-stabilized product target strategy, with its stable strategy launched in August, balanced and positive strategies launched in April 2021, achieved cumulative returns of 1.1%, 4.9% and 5.4%, respectively, by the end of 2021, effectively limited fluctuations and controlled pullbacks amid market volatilities for clients.

In terms of private equity, Gopher continued to promote the establishment and investments fund of funds [and -- secondary] funds and co-investment funds. Fund of funds (inaudible) capital in cutting-edge technology and health care [sub funds], with more than 7,000 underlying companies through more than 230 sub funds . Secondary funds have been ranked as 1 of the top 20 best secondary funds in the world by Global FOF Association for the second consecutive year in 2021. Gopher's direct and co-investment funds mainly focus on areas such as early-stage fintech, consumer, technology and pharmaceutical projects.

Gopher Silicon Valley's venture capital funds and Gopher New York's real estate funds have achieved a large-scale, successful exit from certain projects in 2021 with excellent investment returns. Gopher has constructed an effective investment research system and team composed of fund research team, micro strategy research team and industry research team. [A product] and integrated product development process has been implemented for all funds managed by Gopher around the world.

(foreign language)

[Interpreted] In 2021, in accordance with our planned strategic direction, we finished the reform of qualification systems for relationship managers and greatly increased the base salary for them. The company continuously makes strategic investments in 3 areas, including client interface, technology systems and investment research. In 2021, the number of black card clients grew significantly, thanks to the strategic investment in the core client base. Client service experience has also been enhanced. In 2022, we will continue to invest in the development of core client bases and key cities, the improvement of technology and investment research capabilities so as to pave the ground for long-term, healthy and sustainable growth of Noah while maintaining profit growth at a reasonable level.

Since 2014, Noah has been publishing the Noah corporate sustainability report, for 7 consecutive years. The report was awarded the AAA [highest] rating for excellent corporate social responsibility report by the Ministry of Industry and Information Technology at the fourth China International Import Expo, an honor for the first time to be awarded to a [private] financial company in China. In 2021, we launched special ESG fund sections on our domestic Fund Smile and overseas iNoah platforms. Among the Gopher investment portfolio, a number of excellent investment cases in line with the principle of sustainable development have been identified.

Together with our partners and clients, Noah has organized to plant a saxaul forest -- and consists of approximately 360,000 trees in the Tengger Desert and identified 23 rare species through Noah's Ark - Biodiversity Conservation project. In 2021, verified by the international certification body SGS, Noah obtained the company-wide greenhouse gas emission information certification of international standard certification system's latest carbon verification and qualification (sic) [quantification] and reporting standard, ISO 14064-1:2018, becoming the first enterprise in China to pass this version of the standard.

In addition to focusing on sustainable development and fulfilling corporate social responsibility, Noah also actively promotes women's equal rights. In 2021, I signed my support statement on the principle of empowering women at UN Women. I'm very pleased that, by the end of the year, female employees accounted for 62% of all employees of Noah. Senior executives accounted for 37%. And there is no significant gender-based income gap. There are also 1/3 of female members of the company's Board of Directors. Noah also won the UN Women Asia Pacific WEPs award for transparency and reporting in China this year, marking the only enterprise to win the award in the country.

(foreign language)

[Interpreted] I'd also like to give you an update on our status on the Holding Foreign Companies Accountable Act. The SEC estimated that 273 registrants might be identified as commission-identified issuers under the act. We anticipate that a large number of U.S.-listed companies with operations in Hong Kong and other parts of China will be added once we file our annual report with SEC around April this year. The act is part of a continued regulatory focus in the United States on access to audit and other information currently protected by national laws, in particular China's. The act requires the SEC to prohibit securities of any covered issuer from being traded on any of the U.S. securities exchanges, if the auditor of the covered issuer's financial statements is not subject to inspection by the U.S. Public Company Accounting Oversight Board for 3 consecutive years, beginning in 2021.

Noah Holdings may be provisionally named as a commission-identified issuer following our filing of the annual report on Form 20-F at the end of this month with SEC. Thus, our company's American depositary shares may face the risk of being delisted from the New York Stock Exchange in early 2024. In addition, legislation is being considered in the U.S. to shorten the number of non-inspection years from 3 years to 2 years. We will continue to monitor market developments and evaluate all strategic options.

(foreign language)

[Interpreted] In 2021, we repositioned Noah to focus on serving global high-net-worth clients as a 1-in-100 wealth management company by connecting leading asset managers around the world to provide high-quality wealth management services for high-net-worth and socially responsible families and institutions. In 2021, with the united efforts of a seasoned team, Noah moved forward without burdens, achieved a sustained net revenues growth and drove our net income to a new level without any exposure to real estate high-yield bonds.

We're in a rapidly growing industry. We respected common sense and market rules, reflected and corrected ourselves after the encounter of risks, so even under the complex market conditions in 2021, we still successfully protected the interests of most clients and created long-term value for them. In 2022, Noah will continue to understand and reflect on the wealth management industry, understand the changes and variance in the market and client needs, respect common sense and respect market, continue to deepen organizational change and truly [practice] from product-driven to client centric. Survival is the bottom line, and professional people oriented, to create value for our clients.

China's wealth management and asset management industry is at an inflection point. The future market will further test our professional capacities of asset allocation, client service and technology. Noah will continue to work in the direction of being committed, specialized and in depth to achieve 1 meter wide and 1,000 meters deep, seek benefits in management and become a 1-in-100 wealth management company for global high-net-worth clients. I'm certain that we still have a lot of growth [space] and we will go a long way. Today, Noah's positioning is clearer and more focused. The brand vision of Noah is wisdom beyond wealth, devote ourselves to creating a legacy for generations to come.

Now please welcome our group CFO, Pan Qing, to report on detailed financial performance in 2021.

Thank you.

Thanks, Sonia. Thank you, Chairlady. And hello, investors and analysts.

Looking back at 2021, I'd say it's been a very challenging year, as supply chain and inflationary pressure persisted globally amid new variants and outbreaks of COVID-19, coupled with stricter regulatory policies on many industries and a bumpy equity market. And it's also what makes us so special, that the young but vibrant Noah has accomplished a record-setting year with unprecedented achievements across revenue and profit, benefiting from a well-executed client-focused strategy and our investments in client relationships that paid off. Now please let me walk you through the detailed financial results of the fourth quarter and full year 2021.

Net revenues for 2021 were RMB 4.3 billion, up 30% year-over-year and also the highest since listing, thanks to strong increases in performance-based income and revenue arising from the distribution of insurance products. Benefiting from the successful execution of core clients strategy, onetime commissions grew 57% to RMB 1.3 billion. Recurring service fees were RMB 2.1 billion, up 9% year-over-year as a result of a larger asset base we manage for our clients. Performance-based income achieved another milestone, amounting to RMB 780 million, more than doubled from the previous year. Specifically, long-duration private equity products and private secondary products accounted for 46% and 48% of performance-based income, respectively, again demonstrating our excellent investment and product selection capabilities that in turn translated into value creation for our clients.

Income from operations was RMB 1.2 billion, down 5% year-over-year due to increased talent retention and acquisition efforts, continued strategic investments in client [experiences] to better meet the evolving needs of our high-net-worth clients as well as expenses incurred related to our new headquarter renovation. For instance, we increased our investments in technology, investment research talent by RMB 120 million as part of talent acquisition strategy.

In 2021, we continued to set aside a strategic budget totaling RMB 133 million, which accounted for about 3% of our annual net revenues, covering key initiatives including client acquisition, client interfaces, digitalization, development of new products, compliance transformation as well as operational enhancements in key cities and regions. I'm happy to note that these investments have harvested excellent results, as we have accomplished prominent improvements in technology infrastructure and investment research capabilities as well as record-breaking growth in our core client group and overall client activity.

Investment income was RMB 65 million compared to a loss of RMB 86 million from 2020. Equity in earnings of affiliates more than tripled to RMB 302 million from previous year. These were mainly attributable to fair value adjustments made to the group's direct investments and the underlying assets of Gopher's funds. We recorded a non-GAAP net income of RMB 1.4 billion for the year, a 22% increase year-over-year, with a profit margin of 32%, and 6% over the upper end of our annual guidance.

We plan to continue our strategic investment in areas where we can strengthen our unique positioning and competitive advantage to achieve continued growth over the long term while maintaining efficient and disciplined expense management.

In terms of segmented results, net revenues from the wealth management business were RMB 3.2 billion for the year, up 35% year-over-year, accounting for 74% of the total net revenues of the group. The growth in our wealth management business was supported by robust client activities and strong growth of core clients. Total active clients, including mutual fund clients, during the year was 42,764, a 25% jump from previous year.

As I have mentioned previously, expanding our diamond and black card [client group was one] of the key strategic initiatives for the year. And we have made 3 accomplishments on this front with 14% and 38% increases in diamond and black card clients, respectively; and 18% increase overall by deepening our wallet share of existing clients and effective new client acquisition strategy. That includes more targeted marketing spending, more high-quality off-line client activities; refined client-servicing process empowered by our Noah Triangle service model; as well as digitalized client management and analytic tools, essentially indicating effective client-centric reform.

Total transaction value for 2021 was RMB 97.2 billion, up 3% year-over-year. We noticed and respected clients' flight-to-safety sentiment in face of market volatilities and successfully allocated more insurance products while maintaining slight increases in private equity and private secondary funds products.

Net revenues from the asset management business were around RMB 1 billion, up 19% year-over-year. We continued to exit private credit assets and real estate assets in 2021 and successfully maintained a marginal growth in AUM with a net increase of 2.1% to RMB 156 billion. Since the start of the standardization transformation, Gopher has exited and distributed over RMB 32 billion of private credit assets to our clients. The mix of our AUM has been optimized, as our PE and public securities AUM grew by 11% and 13% to RMB 131 billion and RMB 11 billion, respectively, while real estate AUM decreased by almost 50% to RMB 7 billion.

Despite the COVID-19 pandemic, our overseas business posted exceptionally strong growth which -- with net revenues increased by 39% year-over-year to RMB 1 billion, driven by larger AUM and a 243% increase in performance-based income. We're proud to have a resilient and diligent team who strive to create values for our clients. By end of 2021, we offered more than 1,300 standardized products, our offshore online platform iNoah. And we will continue to strengthen our capabilities in providing global asset allocation services for clients.

When it comes to our fourth quarter results. Net revenues were RMB 1.3 billion, up 32% year-over-year and 39% quarter-over-quarter, also the highest single quarter in history. Onetime commissions were RMB 479 million, up 76% year-over-year and 123% quarter-over-quarter. Recurring income was RMB 558 million, up 28% year-over-year and down 2% quarter-over-quarter. Performance-based income was RMB 173 million, down 16% year-over-year but up 11 -- 111% quarter-over-quarter.

Total operating costs and expenses were RMB 1.1 billion, up 83% year-over-year and 66% quarter-over-quarter mainly due to increased expenses related to off-line [client] activity, included a series of black card gala events; as well as increased RM commissions in relation to higher insurance sales in the quarter. As a result, operating profits were RMB 132 million, down 61% year-over-year and 42% quarter-over-quarter. Non-GAAP net income, on the other hand, was RMB 290 million, up 10% year-over-year and 2% quarter-over-quarter, as equity in earnings of affiliates increased by 300% year-over-year and 150% quarter-over-quarter to RMB 161 million due to favorable fair value adjustments made to the underlying assets of Gopher's funds.

The bumpy equity market throughout the quarter led to a swift shift in investment preference from our clients, resulted in a [13%] dip quarter-over-quarter in our transaction value during the quarter. However, we were able to cater our diverse product offerings to meet with our [clients'] changing risk appetite, which in turn led to more allocation of the insurance products and solid financial results for the quarter.

In terms of balance sheet. Our cash has increased to RMB 3.4 billion. And total assets stood at RMB 10.9 billion as of December 2021. Our [current ratio] was 2.4 multiple. And debt-to-asset ratio was 25.2%, again with no interest-bearing debt. We're mindful about the usage of cash when facing uncertainties but are also considering to install long-term shareholder return mechanisms when the timing is right.

Looking forward, we will likely see another year [mixed with] uncertainties and market volatilities and perhaps escalated frequency of disruptions of travels and commuting when China adjusts to post-COVID-19 times. As Chairlady has mentioned, our clients have demonstrated high-risk-averse preferences. And we're committed to refining our client services and product offering, essentially creating values for clients and shareholders by enhancing our product selection, research and technology capabilities.

In 2021, we successfully converted difficult market environment into record-high net revenues and net income. And we believe the contribution to clients and [talents] are, if not the only, reason. In 2022, we plan to provide more varieties of market risk-neutral alternatives such as Gopher's target strategy products, fixed income and hedge funds and insurance products. I'm confident that we'll continue to deliver growth in 2022 by enlarging core client base, increasing market shares and gaining more wallet share of the existing clients. At the same time, we will continue to implement a strategic spending budget in 2022 to focus on core client acquisitions, operational improvements in key cities, incubating innovative products and services as well as key operational and digital transformations in our effort to set structural foundation for long-term growth.

With that in mind, I would like to announce that the non-GAAP net income guidance for 2022 will be in a range of RMB 1.45 billion to RMB 1.55 billion, reflecting management's current business outlook.

Thank you, everyone, for listening. I will now open the floor for questions.

(Operator Instructions) The first question today comes from Ethan Wang with CLSA.

(foreign language) I have 2 questions. The first one is based on the fourth quarter last year and year-to-date market environment. Have we seen any change in product preference in terms of mutual fund and private segment products? That's the first question. Second question is that we noticed the increase of the costs has been kind of fast, [a little bit fast] in the [first] quarter. We mentioned that it's mainly due to the talent acquisition, so just wondering if management can explain in more details our strategic consideration behind our cost growth, especially given the context of this year's market environment and COVID situation in China.

(foreign language)

(foreign language)

(foreign language)

(foreign language) [Interpreted] First of all, to your question -- Ethan, on your first question is that it seems pretty apparent that our clients have turned quite conservatively in terms of investment preference, but we have tried our best to exit some of the products that are already earning profits and distribute that back to our clients. But it seemed now our clients are more conscious this year in terms of the [health check] of their overall asset allocation strategy. So obviously we have noticed the shift to holding cash or allocating more assets towards insurance products as well as some of the trust structural designs to have segregation of assets from more risky returns. So that shift is actually pretty obvious, I would say. And in terms of outlook of the COVID-19 situation, it seems that it's probably not too big a question when there probably would -- different cities and towns that have continuous but obviously -- occasional shutdowns towards the 20th annual conference, annual national conference. But we're also actually looking at that as opportunities. When actually people get shut off from the off-line activity, they'd probably intend to trade and allocate a little bit more online. And also it's more willing to engage in interactions with us in terms about the knowledge sharing.

Okay? So that's the first question. And second question, in terms of the cost of fourth quarter. It's actually a little bit of, I guess, a mix of seasonality and also the result of transformation. First of all, the fourth quarter is actually typically the conventional season where we have a pretty high number of annual client activities, including a series of black card gala events in [Guilin] in December as well as the separate diamond card client conferences across our cities. So that actually accounted for quite a bit of increase in marketing expenses. And two, it's also part of the as a result of transformation when we actually upgraded the compensation scheme of relation managers, as you probably are familiar with that, that we have increased the fixed pay of RM by close to 30%. We did the first batch in upper half of the year. And also the rest of the 11 regions and cities actually also came into program in fourth quarter, so obviously that also increased expenses of the fourth quarter. And looking forward at 2022, we will continue to actually monitor the expenses, but it seems the height in terms of the transformation in the compensation mechanism will not as [peak-y] as in the fourth quarter. And obviously, looking at the margin, we'll continue to actually maintain a pretty prudent attitude towards the uncertainties in the year of 2022.

(Operator Instructions) The next question comes from Emma Xu with Bank of America.

(foreign language) So I will briefly translate my question. So the first question is that recently we've seen [China APR] as well as [Hong Kong stock] (inaudible) significantly. So how will it impact the performance of Gopher's AUM as well as the products of the third-party managers? And how will it impact the investment behaviors of your client? Second questions is related to your costs. I see that you booked a large credit cost for your lending business, but how is the progress of restructuring of your lending business? And do you continue -- will you continue to book more credit costs for this business going forward?

And we think that your net margin declined to around [21% to 22%] in fourth quarter. Previously you guided that you want to keep the net margin between 30% to 35%. Do you continue to expect this? And we see that you -- the number of your RMs declined in the fourth quarter. What's the reason behind this? And what's your plans for RM growth in this year?

(foreign language)

(foreign language) [Interpreted] First of all, I think, in 2019, when we actually started transformation, it was pretty lucky that they gave us actually room and time to adjust the product mix. And as of end of 2021, we have pretty much completed the, first of all, private credit products as well as any credit exposure that relates to real estate, which actually made our portfolio pretty stable for our clients. And two is we also actually noticed that probably there will be emergence of a new group of clients that also have experienced some of the losses that they may have experienced from other institutions where they actually have investments in the so-called nonstandard private credit products. And this will be a [new good time] to actually help to -- probably with their allocation of assets this year.

Interpreted In terms of portfolio of Gopher and Noah. As you know, that majority of the asset, the AUM that we have is within the primary market, the PE products, but also, in year of 2021, we have exited some of the products actually for our clients to materialize the gain on the products that they have. So I think overall, for the clients of Noah, they're in okay position, comparing to the volatility we have seen on the public market, especially recently, but I -- one of the things that we have noticed, obviously, is that the demand on the asset allocation have obviously taken a turn in face of such high level of volatility and uncertainties. They're probably very much risk aversed and also have demonstrated high interest in terms of protection- and allocation-type product.

Interpreted And one of the main key transformation initiatives for Gopher is to become the fundamental layer of choice for our client's asset portfolio; for example, the secondary PE products, which actually generates quicker cash returns for our clients, as well as the target-return products and also some of the balanced portfolio products. That generates moderated returns but at the same time probably gives them a better stability in terms of the assets. And we did notice that, some of the products that we help distribute, some of the products actually still show a pretty resilient return, including the [CPA] type of products and also multi-strategy products that actually still have maintained a small but positive return as of yesterday, recently. So obviously that strategy is working in the highly volatile market, but again I think the fact is, for some of the deep-value blue chip type of products, they probably are experiencing a little bit difficulty. But again, some of the major hedge funds that we held for our clients actually have a 3-year lock-up period. Probably at this time of uncertainty and volatile period, it probably also provides another layer of protection for our clients' assets. [So overall for the clients] that Noah has, we believe they're probably okay and better positioned than the rest.

So moving on to your second question, Emma. In terms of the credit loss on the loan products is that we actually proactively have retracted from the original loan products; if you recall, in 2019, that we actually have issued products [on the loan] on the back of some of the real estate products. And we have decided -- moving on to your second question: We have decided to actually cease the offerings overall of similar products. So in terms of restructuring, we are probably going to continue to exit this type of product. And we have pretty much -- based on the valuation model that we have worked with our audit, the majority of the credit loss have been computed. We don't foresee a large increase in that type of reserve going forward as we are now continuing to expand our business. What was your third question, Emma?

The third question is about your net margin. You previous guided to keep it at 30% to 35%. It falls to 21% in fourth quarter. And why there is a decline in the number of relationship managers in fourth quarter.

Yes, yes. For the net margin, as I have actually explained in Ethan's question, first of all, it's actually a pretty concentrated marketing season. So basically a series of marketing conferences, including the off-line black card gala and also the galas in separate cities. So that's one of the thing. And two is that -- the increase in RMs' fixed pay. So the -- obviously the last batch, which is also half of the population of RM, that joined the reform also actually have a little bit of pressure on the costs in a single quarter, but when we are talking about the net margin, we usually take a look at the margin from the annual budget process. We still actually aims to maintain around [30% or to 35%] operating margins for the year. And so again fourth quarter is a low quarter, but overall we are probably, I think, close to 28%, 29% of overall operating margin. So from that standpoint, that's still the goal that we're maintaining.

And two is that, in terms of RM, we did have some proactive adjustments in terms of the RM mix, as we have mentioned, in the transformation. When we are actually forming the triangle, we are actually only appointing, I guess, the high-performing relation managers into the direct client interface or AR, account representatives, so there has been quite a bit of regrouping activities, especially when absorbing the last half of the RMs group into the reform. So there is becoming a little bit of volatility in terms of the mix between when you're adjusting to the new reform; and also the proactive adjusting on the low-performing or relatively low-performing RMs, but at the same time, we will continue to put in a pretty reasonable amount of budget for recruiting, yes, in 2022, yes. We believe actually the market -- it's a good timing for us to probably heighten the investment in terms of talent acquisition in 2022, so we'll see a moderate increase in the total number of RMs, but I guess, at the same time, we're actually very being selective in terms of getting some of the talents that you probably wouldn't have the opportunity to acquire in a normal market condition.

(Operator Instructions) The next question comes from Andrew Carreon with Emeth Value.

I was hoping to ask a question on capital allocation. You all have an exceptionally strong and clean balance sheet, which I think is a testament to really the quality of the business, with over 500 million in U.S. dollar cash; and your headquarters, which I think you purchased just this past year. Against virtually no debt on the business and even with the strategic investments in talent that you've made, it sounds like you're projecting still quite [a healthily] cash flow-positive year next year. With the volatility that we've seen in the share price, you could spend just a bit of that cash and have that be quite accretive if it goes towards share repurchases. And I know -- at the end of 2020, I think you all spent about $100 million on share repurchases at prices that were a 30% to 40% premium to where the stock price closed today, so I was hoping to understand the willingness to maybe look at capital allocation in the terms of some return to shareholders in that form.

Thank you, Andrew. (foreign language)...

(foreign language)

So thanks, Andrew. I guess, to put it in a simple way, that's definitely one of the considerations that we have and also one of [the topics] we have discussed extensively on internal meetings. So obviously I'm very cautious of the ROE of our stock. And at this time, it seems it's at a very low point. And I guess I'm actually not at the convenience of comment too much on this, but I just wanted to assure the shareholders and analysts we're definitely keeping that in mind. And when the timing is right, we are planning to install some shareholder return mechanism. That will be probably including all kinds of tools that we have, but we have to wait for the right timing. And understand the -- I guess it's also a reflection of our management style, that whilst -- trying to keep abundance of liquidity to cope with the uncertainty of the market but at the same time are also very conscious of creating value and also returns for our shareholders.

Okay, that's helpful to understand.

(foreign language)

Okay. So Chairlady actually supplemented some color on this question. First of all, I think, especially on the side of the stock price, I think, for the Chinese [SPIs] overall, [quite] at a low point, that's probably majority of the value is not correctly reflected, but for management and for Chairlady, we're still very optimistic about our future and especially the industry and also the company's position in this particular situation. And I guess we are lucky that we started this transformation probably 2 years earlier. And we have no burden no matter from a balance sheet side or portfolio of AUM. And we actually managed to protect the majority of the clients' assets through this wave of uncertainties, probably some of the volatility and, as you could see, evidenced by the returning of especially the core group of clients, which is probably the competitive -- where the competitor is putting all the resources trying to gain, when we still made about 18% increase in core client group in the year of 2021. So I guess we're in a pretty good position. And also Chairlady want -- mentioned that she is also the biggest shareholder of the company, obviously very much conscious of the value creation for and return for our shareholders.

Yes, I think it's undoubted that operationally you all have been exceptional in terms of execution. And as a shareholder, it's been fun to watch. And congratulations on all the success. I think, from a shareholder's perspective, seeing some of those positive signs on a capital allocation front would be the cherry on top and even -- I think, even more pointing towards the optimism, so we'll look forward to the future with much joy.

Great. Thanks, Andrew.

This concludes our question-and-answer session. I would like to turn the conference back over to Grant Pan for any closing remarks.

Great. I don't have any more remarks. Then thank you, everyone, for your time. And we have [several] conferences scheduled and we will talk to you soon on those calls. Thank you.

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]