Jingbo Wang - Co-founder, Chairman and CEO Kenny Lam - President Ching Tao - CFO

Sam Dubinsky - Carlson Capital Lijuan Du - CICC Joy Wu - JPMorgan Ryan Roberts - MCM Partners Anson Huang - Credit Suisse

Hello everyone. Joining me today are Ms. Jingbo Wang; Chairman and CEO and Ms. Ching Tao, Noah's CFO. I will start by providing a brief overview of the financial highlights for the fourth quarter and full year 2015 and walk you through you the performance of our core wealth and asset management businesses. After that Chairman Wang will provide an update on our strategic initiative to establish an integrated financial services platform to support the sustainable growth of the company. Lastly Ching will provide further insight into our financials and provide our 2016 guidance. We will be happy to take any questions at the end of our prepared remarks. Noah has always been focused on improving our core competitiveness in the wealth and management industry. We are committed to maintaining our stringent risk control standards, selecting the best quality products in the global market, enhancing the professional service skills of our relationship managers, continuously strengthening our asset management team and actively doing the development of our internet finance business. These assets has been recognized by our clients and investors, particularly given that we've been operating in the context of a structural transition in China's broader economy and volatility in the global capital markets. I'm pleased to report that both the top and bottom lines were in line with our expectations in the fourth quarter of 2015. We also achieved a non-GAAP net income of RMB603 million for the full year 2015. This is in line with our guidance that we gave at the beginning of the year. First I'll run through some of the highlights for the quarter and for the year. Net revenues were RMB574 million in the fourth quarter, a 47.5% increase from the fourth quarter in 2014. And non-GAAP net income was RMB106 million, up 11.4% year-over-year. Net revenues for the full year 2015 reached RMB2.12 billion, a 38.7% increase from 2014 and non-GAAP net income was RMB603 million, a 25.9% increase from 2014. We distributed RMB20 billion of wealth management products during the fourth quarter, up 69.4% year-over-year and we distributed RMB99 billion for the year, a 56.2% increase from 2014. Total assets under management as of December 31, 2015 were RMB86.7 billion, a 74.3% increase from the end of 2014. These results demonstrate the progress we've made in consolidating our leading position in China's wealth management and asset management industry. Now let's take a look at our wealth management business which provides global wealth investment and asset allocation services to high net-worth individuals and enterprise clients in China. We continue to see a strong growth in registered and active clients. Registered clients increased by 40.3% to 99,019 at the end of the year and we had 12,573 active clients during 2015, an increase of 39.5% from 2014. We are also pleased to see that our efforts to continually educate investors and adjust our product mix have translated into stronger trust in Noah. This is reflected in the increase in the average transaction value per client, which grew by 29.8% to RMB4.35 million in the fourth quarter of 2015. Average transaction value per client for the full year increased 11.9% to RMB7.87 million. In terms of our offline network, we expanded and optimized our network of offices to cover more cities and improve the ability of relationship managers. The offline network is continuing through a transition from the breadth of coverage to total [ph] coverage. By the end of the fourth quarter we had 135 offices covering 67 cities, we basically covered the first tier and second tier cities in main regional economies as well as second tier and third tier cities in developed regions. We also continued to build a team of relationship managers who are both committed to continuous learning and aligned with our company values. Our team of relationship managers expanded from 779 at the end of 2014 to a 1,098 at the end of the 2015, an increase of 41%. Our focus on talent retention also helped us to maintain a 2% turnover rate for lead relationship managers which is extremely low. Chairman Wang will share more information about our product mix shortly, but first I'd like to highlight that we have successfully adjusted our product mix which will both protect our client's long term interest and generate a higher percentage of recurring service fees. In 2015 we distributed RMB31.9 billion of private equity products, which is a 166.6% increase compared to 2014 and a 32.2% of all wealth management products that we distributed during the year. In addition the weighted average duration of private equity products with chargeable recurring service fees increased to 7.4 years in 2015, from 5.3 years in 2014. This transition should optimize our product mix and increase our sustainable income. Turning to our Hong Kong business, we understood clients' growing needs for global asset allocation relatively early on and we established Noah Hong Kong in 2011 to service these needs. Since then we've built a comprehensive product platform and steadily secured a range of financial service licenses, including security trading, securities trading consulting, asset management, insurance brokers and family trust licenses. In 2015 we distributed RMB11.7 billion of global products, which represents an increase of 283.6% compared to 2014. Our family office and discretionary portfolio management services business is more focused on providing services for ultra-high net worth individuals and family office clients. In 2015 we made excellent progress building deeper, long term client relationships and providing services for more than 60 family office in total. China's family office and discretionary portfolio management services businesses are still in a very early stage and has huge growth potential. Family office service is an extremely important part of Noah's long term strategy and we will continue to invest in the development of its business. Now I'd like to provide an update on Gopher Asset Management. In the past five years Gopher Asset Management's business has grown rapidly. It is established mature product line for PE Portfolio funds, real estate funds. Real Estate fund of funds secondary market fund of funds and quantitative fund of funds and internal credit products. As of December 31, 2015, Gopher Asset Management had RMB86.7 billion assets under management, a 74.3% increase from the end of 2104 and a 12.6% increase from the end of the third quarter. Private equity fund of funds accounted for 43.7%, real estate funds and real estate portfolio funds accounted for 36.7% and secondary market equity fund of funds accounted for 12.4%. Gopher has already become one of the most outstanding private equity fund of funds operators in China. The company's asset management business also became a new engine for the company. Net revenues from the recurring service fees were RMB360 million, a 28.6% increase from 2014. Net revenues from performance based income for 2015 were RMB100 million, a 17.3% increase from 2014. Gopher Asset Management has always been focused on improving our investment capabilities. We have been systematically reviewing the more than 1000 projects that we have invested in, developed top-down insight into different industries to improve our co-investment and direct investment capabilities. We also maintain stringent risk control and form long term relationships with the world's best managers. Going forward, Gopher Asset Management will continue to expand assets under management, consolidate its leadership position in the industry and select the best fund managers to help investors share in the growth of enterprises new economy of the future. When we look at 2015, we look at it as the beginning of Noah's next decade and we have been focused on building the platform to support our mid-to-long term growth. We have talked about our mid and back office initiatives and current automation programs in previous earning releases. After a year of hard work we're pleased to see substantial progress. In terms of information systems Noah new core business system, finance system, accounts system are all up and running on schedule. This has significantly optimized user experience, improved processing efficiency and enhanced data analysis. In terms of talent our core management team has been very stable this year and have demonstrated the ability to collaborate closely. The key men training program for future business leaders that we launched in the first half of the year has been conducted three times and provided over 100 mid-level employees from every business unit we started [indiscernible]. Looking forward we expect the external environment will remain volatile in the short term and we expect market risks for industry regulations to maintain a steady hand as we steer through this period. Our historic performance shows that we're not a company that is heavily impacted by physical fluctuations in the market. At the extraordinary general meeting of shareholders in January 2016 a very high percentage of company's shareholders voted in favor of proposal to adopt a dual class share structure. Chairman Wang, CEO of Gopher Asset Management Mr. Yin sir and our management team showed remarkable leadership and judgment during the past 10 years of the company's growth. As the important part of our long-term strategy we want the company to continue to focus on building long-term competitiveness avoid short term fluctuations and maintaining our corporate values. In the long run our aspiration objectives remain intact. We're on track to steadily build on a leading position as a wealth and asset management service provider in China. Now I'll turn the call to Ms. Jingbo Wang, Chairman and CEO of Noah and she will first speak in Chinese and her remarks will be translated into English by our translator.

Thank you, Kenny. Looking back at 2015 as an industry professional with over 15 years' experience, we've once again learned the importance of respecting the market. Looking at the market today, on the one hand it is concerning that we will face a slowing economy in China and globally, with an increasing risk of deflation. On the other hand, China's wealth and asset management industry is massive in scale and has huge potential for future growth. And Noah is the one of the key players in the industry. Over the past 10 years, Noah has maintained its focus on a well-defined strategy. With our extensive market experience and deep industry insight we are positioned as a wealth management and asset management expert that serves Chinese people all over the world. We have maintained our focus on building our core competitive advantages in wealth and asset management. We have continuously improved our capabilities in research, product selection risk control and asset management capabilities. We have also enhanced the professional service of our relationship mangers and continuously strived to understand our customer's real and long-term needs and build long-term trust with our customers. In 2015 in the context of ongoing internal transformation and an abnormal competitive environment, we have made significant progress. Transformation is difficult and we are very pleased that we have successfully resisted the temptations of the market and customer requests and focused on customer communication and investor education. Although we are yet to see the results of these assets internally we are fully aligned in our commitment to being the best version of ourselves, and living our corporate values rather than praying for the best market. We are confident about the future thanks to our culture and our values. We believe that we will continuously increase our market share over the long run. First I think it is important to clearly define how we see the current market. We believe that the real economy still facing challenges amid an environment of less liquidity and we expect it will continue to be a barren market for quality assets. In this context we would like to reiterate that the key for wealth management is controlled risk rather than make profit. In the public market, our secondary market fund-of-funds exceeded RMB10 billion. We believe our hedge fund-of-funds and quant fund-of-funds can help client manage risk. By the end of 2015 Gopher's hedge fund-of-funds and quant fund-of-funds reached RMB7 billion in total. And all of our products generated profit. The absolute yields of the top 30 and most of exclusive quant fund-of-funds products are over 20%. Our quant funds achieved absolute yields of more than 13% for the year. In terms of the primary market we have great strength and have selected the best fund managers in the market. And we believe that Renminbi denominated private equity funds have a historical opportunity for a number of reasons. Asia investment philosophy will gradually become more and more like the US. The number of entrepreneurs will continue to grow, Chinese companies listed overseas returning to the Asia market and we expect more regulatory support. With Gopher's investment capabilities and Noah's investment and fund raising capacity as well as our qualified relationship managers and LP's who have experienced all of the economic cycles over the last 10 years, we are confident that we will continue to increase our competitive advantage and market share in the core area of private equity. Looking at our numbers we distributed RMB31.9 billion of P funds in 2015, a 167% increase year-on-year. These products accounted for 32% of wealth management products distributed in 2015, up from 19% in 2014. We have been closely following hot investment trends such as the aging population, urbanization, supply side upgrading, global rebalancing. We've also established cooperation with best fund managers in high growth industries, such as internet, healthcare, culture, education and intelligent hardware. In terms of fixed income products, we have strategically reduced our investment in real estate financing products that are dependent on development and construction and shifted our focus to high quality supply chain finance. We have established long-term relationships with premium partners such as Haier [ph] China Mobile and Far Eastern Leasing. At the same time, we have made progress in the industrial M&A funds public company mezzanine financing and holding and managing real estate assets at core areas. In 2015 we distributed RMB36.6 billion of fixed income products, which accounted for 37% of all wealth management products distributed and asset quality improved substantially. The development of our global open architecture product platform is also progressing well. Since we established Noah Hong Kong we have been focused on optimizing our portfolio of international products which currently covers real estate funds, international M&A funds hedge funds, foreign fixed income bonds and insurance. Noah has built long-term partnerships with prestigious overseas financial institutes such as State Street, BlackRock, the [indiscernible] Group, TPG, O3 Capital and KKR. In 2015 we also started strategic relationships with McKinley Capital Management, Union Bancaire Privee and the UK Trade and Investment. Noah Hong Kong distributed RMB2.1 billion of products in the fourth quarter of 2015 and RMB11.7 billion in the full year, an increase of 149% and 284% respectively from the corresponding periods in 2014. By the end of the year international assets under management reached RMB12.8 billion, a 245% increase from the end of 2014. The demand for international asset allocation has been increasing in-line with globalization. In addition, high net-worth client's motivation to invest internationally has shifted from risk diversification to proactively seeking returns from international investment. In light of this trend we will continue to build out global open architecture product platform and take advantage of the opportunities related to the long-term liberalization of the China's Capital markets. Noah has always focused on product diversification and continuous innovation based on the industry insights. The capital market in 2015 clearly changed high net-worth clients' wealth management needs from seeking higher return to risk control. One reflection of this risk aversion has been the dramatic increase in demand for insurance products and Noah has long been prepared for this, Noah hold independent insurance brokerage licenses in both Mainland China and Hong Kong. We have experienced teams of actuaries and insurance products to help clients design and customize product selection. In 2015 the number of clients of our insurance brokerage business increased by 179% year-on-year and revenues increased by 59%. In 2015 we've also made good progress in family office and discretionary portfolio management services as high net-worth clients' needs have transformed from product driven to asset allocation driven. And customers have recognized NOAH's ability to allocate assets, both globally and across asset classes. Currently our family of office business unit manages 60 client accounts. As a subsidiary of Noah, Enoch Education has been well received by our clients over the past year. We've always been committed to the principle of wisdom and fortune coming pass [ph] and finding ways to help our relationship managers and clients grow together is one of our most important responsibilities. In 2015, we launched a series of training for over 4,000 clients. The Enoch wealth management class which educates investors on market cycles, economic trends and portfolio investment philosophy has been very well received by our customers. Finally I would like to say that while it has been a challenging year for both Noah and the entire wealth management industry, I'm very pleased and proud of all the achievements and progress we've made. As we look into 2016 the most important themes will continue to be respecting the market, persisting with risk control and bottom line thinking, and our team is fully prepared. Over the past 10 years Noah has proven to be a company that is impacted the least during cyclical volatility. Market volatility presents us with more opportunities and challenges and we believe that exceptional wealth and asset management firms always lose market share during bull markets and gain market share during bear markets. The recently issued working report from the two sessions emphasizes the need to prevent regional financial risk, which indicates that there will be more powerful [indiscernible] in the future. This is also the best time for Noah to build our brand and strengthen our core competitiveness. As they say never waste a good crisis. Since Noah was founded 10 years ago we have now been operating in the capital markets for five years. We've experienced several rounds of market volatility which has made us more mature. 2016 marked the start of the next decade for Noah. We will leverage our experience and the industry insight from the past decade to define our past for the next decade. Now I'll turn the call over to our CFO, Ching Tao, to review our financials. Thank you.

Thank you, Chairman Wang and hello everyone. Today I'll give an overview of our Q4 and full year results and then open the call up for questions. As Kenny and Chairman Wang noted we are really pleased to deliver solid results for the fourth quarter and full year 2015. Q4 net revenues increased 47.5% to Renminbi 573.7 million or US$88.6 million and full year net revenues increased 38.7% to Renminbi 2.1 billion or US$327.3 million. On the bottom line non-GAAP net income grew 11.4% year-over-year to Renminbi 106.2 million or US$16.4 million in the fourth quarter. And for full year 2015 non-GAAP net income grew 25.9% to RMB603.5 million or $93.2 million which was in line with our guidance of $90 million to $95 million. Looking more closely at our fourth quarter performance, we distributed approximately RMB20 billion or $3.1 billion of wealth management products in the fourth quarter representing a 69.4% increase from the same period a year ago. You can find the breakdown of operating metrics in our wealth management business at the back of the earnings release. The weighted average, one time commission rate for the fourth quarter was 0.86% compared to 1.03% in the same period last year and 0.85% in the third quarter of 2015. The fluctuations in the commission rate are primarily due to shifts in our product mix. Recurring revenues were RMB287 million or $44.3 million accounting for 47.6% of total revenues in the fourth quarter of 2015, compared to RMB217.5 million in the fourth quarter of 2014 or 52.7% of total revenues. The decline in recurring revenues as a percentage of net revenues was primarily due to change in the product mix of our wealth management business and a change in the composition of asset types in our asset management business. Going forward we expect recurring revenues to account for around 50% of net revenues over the long-term. We continue to see strong revenue growth in our internet finance business and achieved RMB15.2 million or $2.4 million of net revenues in the fourth quarter, representing growth of 102% year-over-year. We're pleased with the way this segment is growing and we'll continue to invest in what we believe will be an important part of the Noah offering in the long term. We received RMB57.1 million or $8.8 million in net revenue from performance based income during the fourth quarter related to the positive performance of secondary market products compared to RMB10.2 million in the year ago period. Note that we recognize performance based income when the cash flow can be reasonably assured. Looking at our profitability, the operating margin was 8.2% in Q4 compared to 28.2% in the year ago period. The decrease was primarily due to the growth in relationship management compensation exceeding the growth in net revenues and the RMB31.9 million decrease in government subsidies received in the fourth quarter of 2015 compared with the fourth quarter of 2014. The increase in relationship manager compensation was mainly due to an adjustment in our product mix as we distributed a greater volume of private equity products. Private equity products accounted for 32% of total financial products distributed during the fourth quarter of 2015 compared with 19.2% in the fourth quarter of 2014. As we offer higher incentive to relationship managers for the distribution of PE products, the increase in PE products distributed lead to the significant increase in relationship manager compensation expenses during the quarter. It is important to note that 99% of private equity products distributed in the fourth quarter have recurring service fees with an average duration of 7.9 years as compared to an average duration of 1.1 years through fixed income products. So while there is a higher upfront cost of distributing PE products, we will continue to see benefits for many years to come. Non-GAAP net income - net margin for the fourth quarter was 17% compared to 24.8% a year ago. Our balance sheet remains very healthy. As of December 31, 2015 Noah had approximately RMB2.13 billion or $329.3 million in cash and cash equivalents, an increase of about RMB344.5 million from the previous quarter. We posted positive operating cash flow in the fourth quarter of RMB247.2 million or $38.2 million, which is primarily due to the improvement in accounts receivable turnover and the temporary impact of deferring payments for certain compensation and benefits and other expenses. Accounts receivable turnover days was 60 days as compared with 71 days last quarter. Finally I'd like to provide our net profit guidance for 2016. We expect non-GAAP net income for the full year 2016 to be between RMB690 million to RMB720 million, representing increase of almost 15% to 20% compared with the full year 2015. This growth rate reflects the strong fundamentals and steady profitability in our core businesses. And with that Chairman Wang, Kenny and I will happy to take any questions. Operator?

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from the Sam Dubinsky with Carlson Capital.

Hey guys, thanks for taking my questions. Just a few here, if I look at your operating income it declined 57% year-over-year in Q4. So how do we think about that versus the net income guidance for 14% to 19% growth, like how does the operating income line trend going forward?

Hey Sam, thanks for the question. It's Kenny, can you hear me well?

Yes.

Okay, thanks for asking that question first. Actually I want to address that head on. First of all I think Ching mentioned a lot in her speech around the change in product mix which is quite conscious. We basically wanted to move towards longer duration product which actually brings us recurring revenue for many years to come. So in essence what you see is we have costs that are more upfront, a lot more recurring revenue in the future years. And so the margin is the margin product for the particular quarter but the revenue actually doesn't get reflected until years later. So that's one point. Secondly is actually you see that in our operating income we actually have an item called government subsidy, which actually tends to fluctuate between quarters but quite stable over the year. So what happened was that we actually received a larger portion in previous quarters and we received much smaller portion in the fourth quarter. But over the whole year we actually received probably around 24% to 30% more government subsidies in 2015. So that's why I think we did a very thorough budget for next year. We are quite confident we'll actually reach the guidance that we just announced.

And what's embedded in terms of if you can disclose like government subsidies and things like performance payments just so we can better…

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

Okay, great. And just how do we think about the OpEx line going forward given the change in the product mix?

The - I think it will become more stable. I think in December, in the fourth quarter, there is a conscious choice to make sure we get a lot more market share. So you see that we have a substantial increase in client numbers, we have substantial increase in terms of volume, as a way to prepare for 2016. That's why I think in terms of the margin will be in line with average what we see of 2015. The fourth quarter is a bit of an abnormal quarter because of the fluctuations in subsidy as well as the incentives we give to the relationship managers for the long-term duration products.

Yeah, so I would just add to that to say that in the fourth quarter in particular there was a bit more of a hedge fund relationship manager compensation, certain selling and marketing expenses and also relatively less government subsidy that were received. We expect the operating margin to normalize and see improvements in the first quarter of 2016 and going forward.

Okay and just tax rate things like that I thought the tax rate look little bit low this quarter. How to think about that?

Yes, we have been trying to optimize our tax rate and work with the government authorities. So we do operate businesses in certain areas where we have a preferential tax rate. And so overall that is how our effective tax rate comes down a little bit.

So I mean thanks to [indiscernible] the team we've - in the last 18 months we have a very strong financing that basically helped us on three things. One is the government "subsidy" second is the tax rate, third is you see that now cash and investment income has also improved. We think that in terms of treasury and finance functions the Noah team has really delivered this year and we will continue to improve on that next year.

Okay, great and my last one is just what exactly the investment income was this quarter and Q4 looked a bit higher than normal. What exactly is in investment income and also is that just straight line going forward or how do we think about that?

I would like at the full year amount. Investment income typically represents returns earned from cash and cash equivalent short-term money market side and certain short-term wealth management products. So still very, very safe investment.

Okay. So that's the number for the year, not the quarter?

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

Okay, thank you very much.

Thanks, Sam.

Thank you.

Thank you. And the next question comes from Du Lijuan with CICC.

Okay. Thanks for taking my question. I have [indiscernible] first for Ms. Wang and Kenny and second, the other one for Ching. So the first question is likely we will see fee rate decline trend although with an upgrading product mix, and we also see the company is getting more cautious attitude in product screening. So my question is that can you share with us how is Noah going to maintain the double digit growth in 2016, and for Ms. Wang, if you have to list your key focus this year for Noah, could you give us three priorities this year. And the last question for Ching, is that Ching could you share more color on the incentive policy for I&M [ph] when they sell these key products with longer duration? I mean could you give us some quantitative indicators why they need to be paid more, and how do pay them with in different years or something. Thanks.

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

Okay. Our Chairlady Wang will answer the question in Chinese and then we'll translate that in English.

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

[Foreign Language - Chinese].

So let me just translate the question right. So the question was when do we see the Internet finance business turning into, from a volume gain to a one that focused on profitability. So that's the question, yeah.

Okay I think we have to focus on long term. I think to establish a strong Internet finance platform is an irreversible trend. But now we're not particularly focusing on profitability but we want to gain more market share. Number two we still think the landscape, the competitive landscape in the Internet finance industry is still very challenging. However the recent clean-up actually opens up more opportunity for us to grow in the future. I just want to add to my comment. Actually there has been a lot of debate over Internet finance or financing Internet. Actually our conclusion is that actually the core is still financed. So I think Noah has a very strong platform and is very competitive in terms of fund raising and as a finance company. So I think Noah has a really good long-term potential to further grow our Internet finance platform.

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

Okay, Ching, could you share your view on the incentive policy?

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

Okay. Thanks.

Thank you. And the next question comes from Joy Wu with JPMorgan.

Hi, management. Thank you for taking my question. I have two questions. One is do you see any capital needs going forward for business expansion? And the second is we hear some rumors that Noah is going private? I'm wondering if that is one option going forward for Noah. Thank you.

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

Thank you so much.

[Operator Instructions] And our next question comes from Ryan Roberts with MCM Partners.

Good morning and thank you for taking my questions. My first question was just a follow-up on earlier one, actually just for clarity purpose. I think you said that the commission structure for different products that's all the same, however the different product categories the commission varies, is that correct for RMs?

Hi. Let me explain it this way. So we earn one time commission for distribution of wealth management products and we book as net revenues one time commission. So the commissions earned to Noah Holdings, the one commission varies by asset class and we disclosed the - it’s a little bit below 0.85, 0.86 is the number. Now separately relationship managers are paid with a low base salary and rest is basically commission bonus. So the commission we paid to relationship managers, the commission rates vary by asset class a little bit as well. So I would say that when they sell private equity products they typically command a slightly higher commission rate to the relationship managers paid in the form of bonuses.

Got you. Okay

Just to give you a sense, the rate itself is slightly higher by asset class for private equity. But if you look at the numbers that we disclosed, we have a substantially higher absolute amount in private equity products right. So for example last year we did RMB99 billion, of which 32% is private equity right. And the year before we did RMB63.4 billion of which 18.9% is private equity. So if you multiply that to the amount that we distributed, that is one of the main reasons why compensation to RMs for this quarter is particularly high. But as we said this represents multiple years of recurring revenue for assets that's - which is substantially different from what we had before.

Got it, okay. Thank you very much for that. My next question is on the branch network, there has been pretty serious growth year-over-year and I'm kind of curious where we are in that overall process. Should we expect to see more production from branch offices or kind of how should we look at the geographic footprint kind of going forward?

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

Okay.

And I would - okay related to that I would further note that the growth in relation manager headcount exceeds the growth in the fixed branch or fixed asset network. So we're focused much more on relation manger productivity because they are a key sales force. Now part of why it's important to have a branch network is this is a trust business and a local business. So the relationship managers have to have local offices where they can meet the client and conduct business. But the focus is much more on relationship manager productivity as a driver of growth.

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

So just one thing on Internet finance business, so we actually could make this a profitable business right away. What we were looking for, if you looked at our metrics so basically three things. One is we want to make sure we have not only rich clients but also paying clients. So clients are actually transacting on our platform. So that one has grown substantially, I think numbers we've disclosed already. Second is we want to make sure that we grow also on per transaction in terms of clients. And that number has also grown substantially. I think latest number is something around $23,000 [ph] on an per transaction basis, which I think is one of the highest if not the highest for any wealth management platform in China. So that's the second thing we look at. The third thing we look at is the qualitative metrics. We want to make sure that they don't just focus on one or two products but a broader suite of products, right. So moving away from just simple fixed income products to insurance, to other types of products that we think should - would be suitable for [indiscernible] clients online. So those are three things that we care a lot about, at least in the next 6 to 12 months to ensure that this business gets on a solid footing.

And can you give us a sense of what that last metrics in terms of your - it sounds like, and not quite to repeat customer ratio but kind of more of a, I'm not sure how do you phrase that, at least the cross-selling.

So basically if you look at our retail [ph] clients it's over, I can't give you a specific number but it's absolutely over 50% which is also if you look at any platform in the markets, I think it going to be highest if not one of the highest.

Okay, great. Thank you. That's very, very helpful. I appreciate all the clarity, thanks.

Thank you.

Thank you, and the next question comes from Anson Huang with Credit Suisse.

Hi, thank you management for the discussion [ph]. And we noticed - two questions from my side, first we noticed the PE product distribution contribute a lot to the growth last year. But looking ahead, it seems to me that because secondary market products and insurance products may be difficult this year. So what will be the key driver for the growth in terms of product distribution? And second question is we noticed that [indiscernible] invest in [indiscernible] one of our competitors. So want some comment from the management of Noah, will we follow. Thanks.

Give me a second. Want to see if Chairman Wang would answer the question around the product structure. And then to second question around the transaction, that was done on one of the players in the industry, we don't want to comment on a particular deal. But I'll leave you with three thoughts. At Noah we don't believe in executing transactions that may look good on the surface, but doesn't really add value to the company. That's one. Second is we don't believe that in this market we need to have a player investing in us, that is also focused on distribution. I think what we need to do in this market is to add asset management capabilities. Not distribution capabilities. Because I think we have the market pretty well covered in terms of clients but we do need this global asset management capabilities, not distribution capabilities. So for the particular transaction that you mentioned I don't think it falls under that category. The third thing is for any strategic share to come in, it needs to be substantial. So at a small percentage it doesn't really add much value to any particular company. But as I said I don't want to comment on any particular transaction. But from our side those are the three thoughts that we would leave you with.

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

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

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

Hey, thanks for taking my question. So my first question is regarding the dividend policy or potential share buyback. Can you share more about that, the future?

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

So just quickly to add to that you see in our third quarter [indiscernible] earnings release, we bought back about $7 million worth of shares. This is back in around late August, early September as of fourth quarter there were no buybacks.

Okay. Thanks. So my next question is regarding what was mentioned by Chairman Wang like about abnormal competition we experienced in 2015, like can you elaborate more on that and do you see any threshold on the fees we charge for both the fund managers, do we have pressure on that side from competitors?

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

Thank you. That's all my questions. Thanks.

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

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

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