Noah Holdings Limited (NOAH) Q3 2017 Earnings Report, Transcript and Summary

Good day, everyone. And welcome to the financial results for the Third Quarter of 2017 Conference Call. All participants will be in listen-only mode. [Operator Instructions] And please note that today's event is being recorded. I'd now like to turn the conference over to Kenny Lam. Please go ahead.

Thank you, operator. I want to welcome all our investor and analysts friends to our earnings conference call today. In addition to myself, Chairlady Wang and CFO Shang will also be participating on call. For today’s agenda, I will first summarize Noah's overall performance for the first three quarters of 2017 as well as the performance of our two core businesses, wealth and asset management. Then I'd talk about recent developments in our overseas business and our mid and back office initiatives. Chairlady Wang will then talk about products by segment and provide her views on the current macro and regulatory environment. Our CFO Shang will then follow with a detailed discussion of Noah's third quarter financial performance. We will conclude the call with a question-and-answer session. In 2017, China's economy has shown resilience and strength, and its capital markets are also on a solid ground for recovery. However, financial de-leveraging and risk control remain as key concerns of China's domestic regulatory framework. Within this environment, we strive to uphold the highest standards and due diligence in all operations, continually providing a wide offering of diversified global asset allocation and integrated financial services that best cater to demanding needs of our high net worth clients. Our stringent risk management processes ensure that our overall group operations run smoothly and our financial performance remains solid. In the first three quarters of 2017, we distributed a total of RMB89.2 billion worth of financial products, up 16.6% year-over-year. As of September 30, 2017, AUM in our asset management segment reached RMB142.9 billion, a 24.4% increase over the same period last year. In terms of financial metrics, the group achieved net revenue of RMB2.1 billion in the first three quarters of 2017 representing a 12.7% increase over the same period of last year. Non-GAAP net profit attributable to shareholders reached RMB680 million, up 14.8% over the same period of last year. We are satisfied with the overall results achieved in the first three quarters of this year. I'll now discuss our individual business segments. For Wealth Management, as of September 30, 2017, we had 175,979 registered clients, an increase of 35% compared with the same period of 2016. In the third quarter, average transaction value per client reached RMB5.28 million, maintaining our industry leading position. Meanwhile more than 30% of our clients made repeated transactions in the second and third quarters, similar to trends seen in recent years. We also continue to optimize our product mix with the proportion of equity products rising to 41% of total transaction value in the third quarter. In particular, the quarterly transaction value of statutory market products which we have been promoting exceeded that for the first half of this year. While continuously providing high quality products, we are also firmly committed to providing a wide selection of high quality, integrated financial services to our high net worth clients. Our family office now provides trust planning, immigration planning, tech advisory services, and insurance. We also continue to optimize our coverage network for traditional wealth management services. As of the end of third quarter, we have presence in 78 cities with 222 branch offices with a robust team of 1,286 relationship managers, representing a 17% year-on-year increase. It is worth noting that amongst our relationship management team, relationship managers recorded below 3% in turnover in the first three quarters, which is very low in this industry. We are making a concerted effort to strengthen our online training program and recently launched Noah Private Banker program in cooperation with Shanghai University of Finance and Economics. The 37 national relationship managers entering this program were carefully selected after passing a strict screening process, and will over the next three years receive rigorous training. As they matriculate, our goal is to create a team of top notch Chinese private bankers possessing exceptional skills, international perspectives, and long-term vision who are firmly grounded in China and uniquely capable of providing sophisticated services to our clients. For our Asset Management business, as of September 30, 2017, Gopher’s AUM reached RMB142.9 billion, representing an increase of 24.4% year-over-year. The AUM of private equity investment funds increased by 59% over the same period last year to RMB81.3 billion accounting for 57% of the total AUM. In a recently published China's best VC and PE Institution Annual list, Gopher won the China Best Venture Capital Limited Partners top 10 and China's best Renminbi Fund of Funds top 10 awards, once again demonstrating Gopher's recognition within China's private equity industry. Gopher also invests in credit, real estate, and secondary markets with respective AUMs as of September 30, 2017 accounting for 28%, 8%, and 4% of our total asset under management. Going forward, Gopher will continue to leverage its many years of platform experience cooperating with leading GPs in China. It would further strengthen its own investment capabilities and increase its co-investment and direct investment ratios within the existing asset classes. In term of overseas business, as of the end of the third quarter, AUM of the group's overseas asset management reached RMB19.8 billion, an increase of 25% over the same period last year. We believe that investing overseas financial assets not only captures more global investment opportunities, but also help hedge domestic fiscal economy risk and should be important part of Chinese high net worth and individual assets. We have executed well on our globalization initiative. Following the establishment of our Canadian office in Vancouver, we have recently appointed the CEO of our Australian office. Additionally, our US subsidiary is now established both in the East Coast and West Coast. Our first US data venture capital fund has also been successfully launched out of our Silicon Valley office. Finally, I'd like to conclude with the brief summary of our mid and back office development. As financial technology becomes more integrated in our everyday life, we are increasingly aware that technological innovations are disrupting traditional business models. Against this backdrop, we are launching an effort to transform Noah into a technology driven wealth and asset management company. An illustrative example with this theme is the new Noah app that clients can download and conveniently use to complete transactions online and keep abreast of updates within the portfolio and investor education. The proportion of online channel usage has exceeded now 50%. We are also analyzing a massive data accumulated over the past decade and integrating and upgrading the overall data system of the group in order to enhance our overall service capabilities. It will help us better understand our client needs and optimize our service quality. By doing this, we are laying the foundation for Noah's development for the next decade. With that I'll now turn the call over to Chairlady Wang, she will speak in Chinese and remarks will be followed by English interpretation.

[Interpreted] Thank you, Kenny. A month ago the 19th party Congress convened thereby attracting worldwide attention to address China's current development stage and major issues that are facing our society. As a deep thinker and an active participant in China's wealth management and asset management industry, we are fortunate enough to witness the starting, shaping, and substantial growth of many industries in China. From a product driven to integrated service driven, it's a new trend that we've observed in wealth management industry. The asset management industry has also begun to shift from scale driven to investment capability and brand driven. Superior asset management companies might lower their market share in bull markets but significantly increase their market share in their market. We sincerely believe that for the world as a whole, the greatest opportunities in the future will be found in China because of the strengthening of China's economy and a new round of technological revolution. As a business, our biggest challenge is how to keep up with China's rapid rise, continue our adaptive learning and interest and evolve our capabilities. Wealth management and asset management industries in the long run will benefit from the economic growth in China. Year 2017 represents the 12th anniversary of Noah's inception and 7th anniversary of our IPO. We are pleased to see that in November many Chinese companies representing new financial technology were listed in the United State and Hong Kong. Many of them are also our partners. We believe that 2017 will not only be a year of succession but also a year of new beginning. We are ready to embrace the unprecedented growth stage. Now I'll provide a more specific report on several major product categories of Noah and Gopher. Noah has always been a preferred channel for domestic leading GPs in the VC/PE market, while Gopher has become one of the top Fund of Funds managers in China. In this asset class, we have conducted 10 years of business with our product demonstrating solid performance, we are able to be recognized by more and more high net worth and institutional investors. In the third quarter of 2017, total transactions value of VC/PE product distributed was RMB9.6 billion, up 78% from the same period last year. Total transaction value in the first three quarters reached RMB26.9 billion approaching the full year figure of 2016. As of the third quarter, Gopher's VC/PE AUM reached RMB81.3 billion accounting for 57% of total AUM with over 3,000 cumulated investment projects. In terms of asset project, 40 companies in our portfolio had successfully gone public and four have received regulatory approval and are waiting IPO. These figures in the first three quarters of 2017 are already approaching the sum of the last three years. With the normalization of Asia IPO market and the opening of another round of overseas listing of Chinese companies, we believe this product category that we've worked so hard for last 10 years is entering its harvest season. While continuing to leverage the advantages of our existing platform, we actively deepen the GP resources, strengthening our industry coverage as well as our active management capability. We have put forward multiple innovated product strategy such as -- fund with co-investment strategy, PE secondary funds and mezzanine fund by increasing co-investment and direct investment in the portfolio, we aim to enhance the investment value for our clients and future revenue generation capability for the company. In the future, we'll also increase the allocation of co-investment and direct investment project in the financial, cultural, consumer healthcare and TNT sectors. In addition, we will support the government resolve that financial service need to serve real economy and use our PE/CE financing to support the growth engine of China's new economy. In the area of secondary market, the Asia index have started to pick up since mid 2017 while overseas market such as Hong Kong and the US stock market have performed above expectations. The confidence in investment enthusiasm of domestic investors is gradually recovering. In the third quarter, total transaction value of our secondary market investment was more than the sum of the entire first half of this year to reach RMB3.1 billion and Gopher's AUM has maintained above RMB6 billion. From a product strategy point of view, the vast majority of secondary market products that Noah help distribute a leading value investment product such as for Perseverance and Greenwood whose performance is significantly outpaced the market so far this year. Gopher appears to model that combined Funds of Fund and Manage of Manager which further enhances its risk management capability and investment performance. The latest non product has significantly outperformed the index by increasing 23% year-to-date by the end of October 2017. With strict control of replacement, Gopher helps investors to achieve steady and sustainable return. In the category of fixed income products with the recent increase in corporate credit risk event and regulatory oversight for financial risk, Noah is actively reviewing and innovating its product strategy. In the third quarter, we launched a new alternative credit portfolio fund which diversifies our underlying assets in our existing covered areas such as consumer finance, auto finance, supply chain finance and private bond and with already familiar counter parties. By doing so we significantly reduced our investment risk concentration and created asset returns through our pro active management. As we were in a phase of product transformation and because we need to catch up with supply capacity and investor education for the new products, the amount of credit product sold in the third quarter dropped to RMB10.8 billion. However, we believe that adoption of an NAV- based mechanism for products like our new credit fund is an inevitable trend and it is the only way to say good bye to guarantee for payment of fixed income product in China. As a front runner of our industry, we should guide our investors to develop a rational and matured investment philosophy and to promote healthier and more standardized development of our entire industry. In terms of real estate products and investment, we believe that the generating real estate fund which focused on existing operating and yielding asset and appreciate them by enhancing their operational capabilities has just begun in China. The real estate fund team of Gopher participated in the active management of over 120 projects in more than 30 cities by covering high quality asset in core city, involving in property operations, transforming distress properties into opportunistic asset, as well as managing real estate acquisition mezzanine fund. Of the 94 projects that Gopher has already exited, the average IRR of equity fund exceeded 15%. Take Gopher center as an example it was acquired, constructed and operated to a Gopher managed real estate funds in two years ago. At present, the commercial property is fully opened, the occupancy rate of this office building reached more than 90% in many Fortune 500 corporation have chosen this location. It has become one of the highest quality office buildings in Shanghai's World Expo riverbank area. In the third quarter, we successfully locked in several similar large scale and high quality commercial real estate projects. These reserved projects will further enhance the performance and product quality of our real estate investment. Our new real estate strategy has also been recognized by institutional investors such as insurance company. We think by next year this asset class will have larger investment opportunity to invest in assets at relatively reasonable prices. In the third quarter, we formally established a Special Asset Management Department hoping to accumulate and inherit our past experience and disposing of distressed asset. Going forward, this asset class will also be our focus. We believe our capability of special asset disposal is a competitive strength differentiating us from the rest of the market. Noah's internet finance and innovation subsidiaries which were hedged from within the group around customer need have also made great strides since the beginning of 2017. Caifupai established a platform on standardized mutual fund and self trading system through a unique approach to lending quantitative analysis and artificial intelligence, Caifupai has enhanced its information processing capabilities and formed an intelligently focused portfolio selection investment platform. Noah's Financial Express, our small short term loan subsidiary is also targeted at a high net worth individual. We continue to promote its product diversification and strive to establish a nationwide network layout. The shift from product driven to integrated service driven is a trend that we've witnessed in wealth management industry. It is also the direction that Noah is aiming for and moving for. At present, apart from investment based financial product, we can also provide in-depth, integrated services to our customers in areas such as global insurance, trust, family offices and in education. We also spend a lot of time and energy on investor education to bring wisdom our clients' wealth development process. In the first three quarters of 2017, we hosted seven Noah university events, 17 Noah open classes as well as various nationwide professional investment forums and regional event covering nearly 180,000 investors. Through these activities we help our clients to take a more rational perspective to investment management and wealth inheritance. Our public welfare foundation, Noah Foundation brought about spiritual charity courses to meet the growing spiritual demand of our customers and help us to achieve greater customer resonance and connectivity. For example, Noah Foundation launched the hard journey to desert project in 2017, challenging life limit in 53 kilometer desert walk in three days and influencing more people to participant through fund raising for public welfare. The event was well supported by more than 16,000 participants and donors and raised more than RMB3 million in donations. + Lastly, I'd like to briefly discuss our views regarding the recent regulatory environment. At the end of August, interim regulations for private equity fund management went for public comment, coupled with pre promulgated proper measures for securities in future's investors management as well as the series of rules and regulations regarding private equity fund filing, capital raising, information disclosure. It will guide the entire asset management industry towards a more standard and orderly direction. Noah as an enterprise that adheres to regulatory compliance and a company with strong core competencies, we believe these regulations will be long-term beneficial to us. And we have already maintained disciplined communication with regulators. Just last weekend, the Central Bank lent a formulation of guidelines on regulating the asset management business of financial institution and started to solicit public opinion. It explicitly prohibits some long standing issues in our industry such as farming pools, maturity mismatch, guarantee repayment and multilayered investment in asset management product. In particular, it explicitly requires that all assets under management should be managed in a net asset value manner. It also stipulates the specific identification and punishment for any source of guarantees for principal and yields demonstration of regulator's strong determination. We consider this to be an important milestone for the long term improvement of our industry. On the other hand, in addition to promoting coordinated supervision and risk control, the speeding of Renminbi internationalization was once again up doing the 19th party Congress. During President Trump's visit to China, the Chinese government clearly indicated that it would significantly lower asset threshold in the financial industry which gave the market a clear signal of opening up and development. In our view, this duo focus of promoting development and controlling risk will be the main theme of financial regulation in the near future. A new pattern of China's economy and financial system will also be constructed in this process. I was quite touched by a phrase that I recently read. We though our competitors were our peers but in reality our competitors is the time. Faced with the changing time we must maintain our commitment to deepening our learning and optimizing our cognitive capabilities in order to more accurately understand our customer need and provide a right product and services at right time. While we continue to leverage our competitive strength, we will use our professionalism and an innovative product and services to create more value for our customers, employees and shareholders and contribute to the healthy development of China's wealth management and asset management market. Thank you. Now I'll turn the call over to our CFO Shang to review our financial results.

Thank you Chairlady Wang and hello everyone. [Technical Difficulty] we are pleased with our financial results in the third quarter of 2017 and we are on track to deliver solid results for the full year. We've realized RMB684.3 million of net revenue for our third quarter of 2017, an increase of 12.5% year-over-year and non-GAAP attributable for net income in the same period was RMB215.4 million, up 19.9% year-over-year. Our revenue contribution, recurring service fees in the third quarter of 2017 were RMB346.5 million, up 17.5% from the same period last year, contributing to 50% of total revenue. The growth of our accumulated distributed product and asset under management continues to provide strong revenue stream going forward. One-time commission received in the third quarter was RMB213.1 million compared with RMB281.2 billion in the same quarter last year. The decline was primarily due to lower effective commission rate year-over-year as distribution of insurance product was lower. Total transaction value for financial product we distributed during the quarter was RMB23.5 billion, relatively flat from the year ago. However, I'd like to highlight the robust transaction value growth of equity product which have strong reoccurring service fees and most have performance fee closet. Total performance based income for the third quarter of 2017 was RMB74.8 million, driven by the successful exit of several real estate funds. We are pleased that our performance based income as a share of total revenues increased to 11% this quarter. It demonstrates our effort to build a leading multi strategy asset management platform with strong investment capability and performance. We have now realized the performance based income for 13 consecutive quarters and we expect to carry revenue to increase in the future as we generate strong fund performance for our clients. This will also be positive to our income from equity and affiliate which I will explain a bit later. By segment, net revenue from the wealth management business continues to contribute over 70% of total revenues with RMB488.9 million. Net revenues from asset management business amounted to RMB154.6 million, up 34.3% year-over-year. Our internet financial services achieved RMB30.9 million in net revenues in the third quarter, representing a large 172% increase from year ago as well as 17% growth quarter-over-quarter. Total operating expenses in the third quarter of 2017 were RMB524 million, up 17.5% from a year ago driven primarily by a decrease government subsidies and an increase in relationship manager sales commission due to a larger portion of equity products and total transaction value. Operating income stayed relatively flat year-over-year at RMB163.3 million for the third quarter and operating margin was down to 23.4% from 26.7% a year ago. However, excluding government subsidies, operating margin in third quarter was 22.7% compared to 19.6% in the same period of 2016, reflecting our continued focus on cost management. We realized RMB45.7 million of income from equity and affiliate in the third quarter, mainly representing the increase in fair value of the funds which Gopher manages and invest it as the general partner. The strong performance in the funds we manage contributes to both performance based revenue and income from equity and affiliate. As of September 30, 2017 the company had RMB1.98 billion in cash and cash equivalent down from RMB2 billion in a previous quarter and operating and investing cash influence was offset by financing cash out flow which is mainly because of the repurchase of the Sequoia's stake in Gopher in the third quarter. Finally, I'd like to reiterate our performance year-to-date reflects strong fundamental and steady profitability in our core businesses and RMB825 million to RMB860 million non-GAAP attributable net profit guidance for the full year remains unchanged. With that Chairlady Wang, Kenny and I will be happy to take any questions. Operator?

[Operator Instructions] And our first questioner will be Katherine Lei with J.P. Morgan. Please go ahead.

Hi, good morning. I would like to ask a question I think I want to elaborate -- can you elaborate more on the fixed income product sales? I think the transaction volume is actually significantly down from second Q and also comparing to the same quarter last year. Yes, so please help us to understand what lead to this and then going forward what should we expect? This is the first question. The second question, I noted that on the revenue side I think fund fee is also lower compared to last quarter and also same time this last year. Is that because of the slowdown in fixed income sales? But recurring fees is improving and then is it due to -- [Technical Difficulty]

Katherine, you cut off. Hello, are you still in the line?

Yes. I am still on the line.

So to answer your second question, you have a second question around recurring fees and one time part of it.

Yes. I think the upfront fees is actually I mean the upfront fees is slightly weaker this quarter so but then the recurring fee makes up for that. So I was just want to understand the dynamics there and then also going forward how should we expect because that actually will increase distribution of key products in recent years. Should we expect that recurring fee will continue to be strong? Can we extrapolate the result of this quarter into future quarters on the recurring fees? Thank you.

Yes. So, Katherine, I'll answer both of your questions. So on the first question regarding the fixed income transaction value in the third quarter. As madam Wang has mentioned in her remarks, I think for fixed income product, I think our strategic plan going forward is to launch more alternative credit portfolio, so effectively we are distributing less single project fixed income fund and we are doing more portfolio like fund. We think the new type of portfolio fund is better for the client and ourselves because it really helps diversify better in terms of the underlying assets, and so we are evolving the type of product we are doing. I think this will take time for our relationship managers as well as our clients to adapt, but we are seeing good results in the last few months. So I wouldn't be too worried about the fixed income transaction for our third quarter. And I'd like to highlight that if you look at our product mix over the last few years, I think there will be a rotation among the asset classes and this is because of the changes in the macro environment as well as our top-down strategy approach in terms of helping our clients in terms of rebalancing their portfolio. So I think our goal in terms of transaction value is to continue to increase overall transaction value but from time to time the product mix will alter. Now in terms of your second question which is one time commission revenue lower year-over-year and quarter-over-quarter, I think it is because of two reasons. One is compared to year-over-year, we did less insurance product. Last year was a very strong insurance year. Insurance products are more front end loaded in terms of revenue and less recurring. Third quarter compared to second quarter, we did more equity products as opposed to fixed income products. Again, equity products have a lot of revenue recurring rather upfront one time. So to some extent I think you can see more equity product help in terms of building a bigger base for recurring service fee going forward and so that as you noted recurring fees have continuously grown over last two years and makes it more than 50% of our total revenue, and from the CFO perspective I think it helps lay the foundation for strong start in 2018 and more than half of our revenue are recurring in nature.

And Katherine just a point [Technical Difficulty] product in early years was mostly real estate back. I think we are shifting it to other types of underlying assets, that's one. And two is we think it's actually a healthier mix of products for clients. If you look at the first two quarters, it was over 70% of the allocation, it was on what we call fixed income. The market in deed has demand for that but we are actively helping clients to reallocate assets to lower allocation to fixed income products.

And can I have a like a follow up questions on that because if I look at that on the revenue side, actually we did not -- even on [indiscernible] it is like some decline but the decline is not -- I think the magnitude is not as much as in the sales, in the fixed income sales. Can I say that exotic product like the multi portfolio, fixed income product that you mentioned about actually has a higher fee than the single project products.

Yes I'll comment a little bit in terms of the revenue contribution from single based fixed income, single project based fixed income product versus portfolio. So for the single project based it's mostly upfront so you could almost good as we are charging like a fixed and mostly it's recognized upfront and received upfront. We have the portfolio of credit fund which is almost like portfolio of highly bond fund where in addition to upfront discretion fee there are ongoing reoccurring service fees. So our credit portfolio we've been working with clients over the last few months is general duration is two plus one. So it actually helps us lock-in that fixed income investment for much longer than one year. So we will see part of the revenue being contributed in recurring service fee. And in addition to that for some of the portfolio fund, we actually have performance fee clauses as well. So this is in terms for the return of preferred rate let say 6% or 7% where we may receive 5% to 10% and carry. So we are actually seeing both for the client in terms of diversification risk and second in terms of our perspective building of our active management and credibility we think moving into credit portfolio is strategic move.

And our next questioner will be Haifeng Cao with Nomura. Please go ahead.

Thank you for the opportunity and congratulations on the good results. I am Haifeng Cao from Nomura. I just have three questions. Firstly, in terms of the new asset management regulation rollout last Friday. One of the regulation is the non financial institute cannot allocate to series of asset management products going forward. So I wondered how much our wealth management business is actually asset management product. This is first question. The second question. I noticed that the average transaction value per client for the third quarter decreased by around 4.1 percentage. I wondered what's the reason behind this decrease? And then thirdly, can the management team share our strategy for the next year especially from the perspective of products, ours and our clients. Thank you so much.

Yes. If you excuse me. Let me just quickly transfer your three questions sorry once again. So let me answer the first two questions and madam Wang will answer third question. So your question is regarding the latest -- seek for comments guideline that was promulgated by CRC I believe. And that I mention that non financial institution cannot distribute financial product. And I think this is in line with the regulation we've been seeing over the last two -three years where regulation is stepping in terms of both wealth management and asset management. And we think it favors the state affair but obviously we have had licenses now for many years. And it's really a crackdown on those institutions that are active in the industry but they are non compliant, they don't have licenses and so overall we think it's a very strong benefit for leading players in the industry. And also madam Wang mentioned is a crackdown on guarantee repayment and it's pressing NAV- based product which again highlights our strategy into credit portfolio. And so in short comment about the non financial presentation doesn't affect us because we have the relevant licenses for both our wealth management and asset management businesses, the primary regulator is CRC. On your second question is regarding the average transaction value per active plan is down this quarter year-over-year. This is primarily due to the increase transaction in value for public market product. Public market product compared to private equity and credit product lower minimum start so the minimum start for hedge fund in China is RMB1 million. So it's really due to product mix rather than anything else. We do expect for the full year 2017 average transaction value per client to be stable or around RMB7 million to RMB8 million per year. Now regarding your third question, I'll ask our madam Wang to comment on our strategy next year and I'll help with the translation.

So, first, I would like to comment overall I think the market will be much healthier next year. Clients are now starting to understand the direction of the regulation and several many clients actually over the last few years have got hurt by products that were not managed properly. So high net worth individual I believe next year will be focusing more on brand and quality and obviously these two will direct client our way because obviously we have very strong brand in the market. I would like to comment on our product strategy for next year. I think for our product strategy next year it will be centered around value and investing in particular very strong focus on public market product so Asia and shares in Hong Kong or globally. We think is really to help our clients in terms of value investing. Now so our goal is to increase overall transaction value for our secondary market product and where we are seeing results in the third quarter. And we expect that to go forward next year. Now in terms of credit product strategy, as I mentioned, we are rolling or launching new type of credit related product such as credit portfolio fund, mezzanine fund and preferred fund. We think these types of many funds are better for our clients as opposed to historically we are doing a lot more single based project fund and I think after it will probably take two to three quarters of investor education and we can see volume really to help next year. In terms of VC venture capital and private equity, we have already locked in a secured several leading GP who will do new rounds of fund raising next year. And so that really gives us a good foundation in terms of our VC fund raising next year. In addition, now for several years we've been managing our private equity secondary funds. And given our leading position this asset class; we have the strong advantage in terms of managing our secondary fund. And we think we have now build, if not the leading, if not the number one brand and we expect this to grow in overall end and attract a lot more institutional investors. On a real estate side, as I mentioned earlier, we have also locked in a several very high quality commercial building which will help us with rolling our new product for real estate. So, overall we feel quite confident in terms of product pipeline for next year. For overseas product, I think the focus on innovation and also renewed efforts in terms of building or developing product around Shanghai connect.

Also I want to add to two more points [Technical Difficulty] as madam Wang talked a lot about the product strategy which is a substantial transformation along side the market trend. We also are doing two things to substantially increase the growth rate of the company. One is there will be substantial transformations of the front line that includes as I mentioned in my speech a training program that will take training for RMs to the next level. We are also launching a new approach in terms of network expansion that I'll detail later that would allow us to grow much faster in terms of client wallet and productivity of the RMs. So that's one thing we are going quickly. The second thing that I mentioned is around technology. We will be investing heavily on new technology to ensure that we are a way ahead of the curve in terms of technological innovation and that includes not only online transaction for net affluent clients but also high net worth clients, plus also how we use and leverage data in a very systemic way. We are expected to increase not only in technology of investment and infrastructure but also in talent. That's the two things; the whole idea is that we are looking at pushing on growth for the company through not only as product transformation but also frontline technology.

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

Operator, is there more questions? Why don't we wait for another one or two minutes if there are more questions?

And our next question is a follow up from Katherine Lei with J.P. Morgan. Please go ahead.

Hi. I have a follow up questions on the recurring fees. I would like to ask if the recurring fees like what's the portion of that is performance related and what is the portion that is like non performance related?

Right. So we actually book our performance systems [Technical Difficulty] and performance fee income. So as you look our quarterly annual disclosure, it's revenue time. One time commission performance fee and performance based income. Now so it's separate. In terms of our AUM, about 50% to 60% of the AUM that we currently manage has performance based fee clauses; typically equity product will have performance based fee income more often than fixed income product. So I mentioned earlier that the third quarter more than half of the product mix was equity product that's actually help in terms of our recurrence fees and also help potentially if we do well in terms of managing the fund on a performance based fee income. I would like to remind our investors that in terms of our performance based fee income; we take a very conservative approach in terms of revenue recognition. We only recognized performance based income when it is actually realized. So we do not mark-to-market. So with that in mind over the last 13 quarters we have consecutively book performance based fee income despite the Asia market volatility, it is because we have build multi strategy asset management platform. So it helps us achieve, returns for our client and revenue for performance fee income in all weather almost.

Okay. If there are no more questions. Just one more, okay, great. .

And we do have another question from [indiscernible] Private Investor. Please go ahead.

Could you please repeat your outlook for the balance of 2017? Or for the full year 2017 if you would?

Yes. We have a full year non-GAAP attributable net income of RMB825 million to RMB860 million.

And it looks to me no further questions. So this will conclude the question-and-answer session. I'd like to turn the conference back over to Kenny Lam for any closing remarks.

Thank you all for dialing in. After call if you have any questions, please reach out to our investor relations team. We'll gladly return your request and answer your questions. Thanks very much.

And the conference is now concluded. Thank you all for attending today's presentation. You may now disconnect.