U.S. Markets open in 8 hrs 45 mins

Edited Transcript of NOAH earnings conference call or presentation 29-Aug-19 10:59am GMT

Q2 2019 Noah Holdings Ltd Earnings Call

Shanghai Oct 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Noah Holdings Ltd earnings conference call or presentation Thursday, August 29, 2019 at 10:59:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jingbo Wang

Noah Holdings Limited - Co-Founder, Chairwoman & CEO

* Shang Yan Chuang

Noah Holdings Limited - CFO

* Yi Zhao

Noah Holdings Limited - Group President

================================================================================

Conference Call Participants

================================================================================

* Katherine L. Lei

JP Morgan Chase & Co, Research Division - Research Analyst

* Lingfeng Cai

JP Morgan Chase & Co, Research Division - Analyst

* Martin Ma

Nomura Securities Co. Ltd., Research Division - Associate

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen. Welcome to Noah Holdings Limited Second Quarter 2019 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

After the U.S. market closed on Wednesday, Noah issued a press release announcing its second quarter 2019 financial results, which is available on the company's IR website at http://ir.noahgroup.com. This call is also being webcast live and will be available for replay purposes on the company's website.

I would like to call your attention to the safe harbor statements in connection with today's call. The company will make forward-looking statements, including those with respect to the future operating results and expansions of its business. Please refer to the risk factors inherent in the company's businesses and that may have been filed with the SEC. Actual results may differ materially from any forward-looking statements the company makes today. Noah Holdings Limited does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under the applicable law. The results announced today are unaudited and subject to adjustments in connection with the completion of the company's audit. Additionally, certain non-GAAP measures will be used in our financial discussion. A reconciliation of GAAP and non-GAAP financial results can be found in the earnings press release posted on the company's website.

Today, the call will be hosted by Ms. Wang, Jingbo, Chairlady and CEO; Mr. Zhao, Yi, Group President; Shang Chuang, CFO; and Grant Pan, Group Deputy CFO of Gopher Management Partner (sic) [Gopher Asset Management].

With that, I would like to hand the call over to Mr. Zhao, Yi, Noah Group's President.

--------------------------------------------------------------------------------

Yi Zhao, Noah Holdings Limited - Group President [2]

--------------------------------------------------------------------------------

[Interpreted] Thank you, operator. For today's agenda, I will first briefly summarize Noah's overall performance for the second quarter and the first half of 2019 as well as the development of our segment business. Chairlady Wang will then provide her current views on the company product, the strategies and updates on the Camsing incident. Our CFO, Shang, will then follow with a detailed discussion of Noah's second quarter financial performance. We will conclude the call with question-and-answer session.

Now I would like to share with you the financial and operating results we have achieved. In the first half of 2019, Noah generated net revenues of RMB 1.76 billion, up 8.2% year-over-year and a non-GAAP net income of RMB 570 million, up 13.2% year-over-year. In terms of profit margin, non-GAAP net margin in the first half of 2019 reached 32.2%, up 140 basis points year-over-year maintaining at a healthy level.

By business segments, we distributed RMB 52.4 billion worth of total products in the first half of 2019 for our wealth management segment. Although the transaction value in the first half of the year fell by 7.8% year-over-year, product mix and the product strategy evolution have achieved the initial positive results with a significant increase of standardized products. Specifically, in the second quarter, the distribution of standard products such as bond funds and the mutual funds increased 89.7% quarter-over-quarter.

As of the end of the second quarter, the number of relationship managers was 1,428, down 4.5% year-over-year, while the number of elite relationship managers increased by 20.8%, demonstrating a further optimized structure. The turnover rate of elite relationship managers maintained at a low level of 1.4%.

With respect to the clients, in the second quarter, the number of active clients increased by 31.9% year-over-year with an accumulation of clients' investments with us. The number of clients at all asset level increased, particularly the number of Black Card clients, our top-tier clients with at least CNY 15 million assets advised by us grew rapidly up by 17.9% year-over-year, indicating the continuous trust the ultra high net worth clients have in us.

Moreover, value-added service grew attention. In the second quarter, the insurance business grew by over 100% year-over-year, extending global insurance planning service to more than 1,500 clients. In the first half of this year, the number of newly established family trust increased by 340% year-over-year, providing comprehensive protection on high net worth clients in terms of risk management, wealth planning and asset inheritance. Noah will continue to provide a comprehensive, value-added service to meet the needs of high net worth clients.

In terms of the asset management segment, the AUM in the second quarter increased by 12% year-over-year, reaching RMB 180.8 billion. Specifically, the AUM of private equity, real estate, public securities and multi-strategy funds increased by 11.2, 9.1, 90.7 and 93.2 percentage year-over-year, respectively, reflecting the continuous improvement of Gopher's ability in the -- in liquidity management and asset allocation.

Speaking of breakthroughs in active management capabilities, it is also worth mentioning that by the end of second quarter, the total AUM of RMB and U.S. dollars denominated bond funds exceeded RMB 3.8 billion, up by 2.2x quarter over quarter. Going forward, bond funds will gradually replace private credit products to meet client's strong needs for fixed income investment.

In June, Gopher hosted the annual LP conference and the PE summit that attracted over 2,000 investors and dozens of [strategy funds managers]. In July, Noah's first ever overseas investors summit and the post-investment communication meeting was successfully held in Hong Kong, attracting over 500 clients with overseas products distributed by Noah. A comprehensive review of existing funds and exchange of investment concepts against the backdrop of the domestic macroeconomic and the global geopolitical uncertainties have led a closer relationship between global investors and us.

Lending and other business segment continued to grow steadily. In the first half of the year, the principal amount of new loans originated a total of RMB 5.3 billion, relatively flat from the same period of 2018. As part of the comprehensive solutions for high net worth clients, we will continue to grow this segment in accordance with clients' needs and improve our core competitive edge through technology and the big data risk control.

We are also happy to see that our overseas business is maintaining great momentum. In the second quarter, the total revenues of our overseas business reached RMB 230 million, accounting for 26.6% of the group's net revenues, with revenues from Hong Kong business up by 20% year-over-year. As of the end of the second quarter, the overseas AUM reached RMB 25.5 billion, up 14.6% year-over-year. Our Canadian office also successfully obtained dual license to operate as a portfolio manager and [exempted] market dealer issued by 2 Canadian provinces, marking the global recognition of Noah's compliance and of key staffing our overseas expansion.

Looking ahead, Noah will continue to adhere to the compliance principles, maintain close contacts with regulators of overseas market to further strengthen our capabilities of global asset allocation for overseas institutions and individual investors.

Now, I would like to talk about what we have done to enhance our operational efficiency, building on what we have achieved in the last quarter in the second quarter. In order to further optimize the organizational structure, we continue to upgrade the structure of regional service centers, merging small ones to streamline an inefficient use of personnel and improve the productivity and -- of relationship managers. Gopher's organizational structure was also improved with per capita AUM of investment teams up by 22.6% quarter-over-quarter. At the group level, we continue to view and strengthen our professional team to uphold a -- the elite culture.

We continue to invest heavily in technology. In the second quarter, the dual recording system for client screening was put in operation. And within the same quarter, 76% of all transactions approved were conducted online while the rest were done in the conventional ways. The new technology not only meets the compliance requirements but also quickly improve the client's experience comparing to the lengthy process in the old days. The international version of our client relationship management system and the core business system have been launched recently, with -- which promotes overseas compliance capacity together with the groups.

Moreover, in the second quarter, we launched the new mutual fund app called [Sunsmart]. This application merged the public and the private fund account systems so that user experience upgrades and the post-investment monitor becomes much easier for our clients. Meanwhile, the system will automatically recommend the fund and the rebalance according to the user's risk appetite and current asset, making the asset allocation service more intelligent.

In the second quarter, we also strive to establish the group's operational efficiency and effectiveness through the following: first, top 10 key operating metrics per business segments; two, quarterly performance ranking and monitoring; three, quarterly business reviews; four, ranking and the grouping of business units; five, value proposition of key positions and et cetera.

We're also delighted to share some good news with you. We won several major international awards including Wealth Management Firm of the Year and Best Wealth Manager for Fund of Funds in China by Asiamoney 2019. As well as Best Boutique Wealth Manager in Mainland China by The Asset. Moreover, Noah is the only independent wealth manager in the Mainland that has been listed in the 3 A Awards (sic) [Triple A Awards] listed off -- list of The Asset. We will stay true to our mission and then strive to become the leading wealth management brand for global Chinese community.

Looking forward, Noah will continue to focus on the fundamentals and proactively manage the challenges and opportunities by focusing on overseas and the strengthening risk control. We endeavor to provide our clients with various and high-quality products and services.

With that, I would like to turn the call over to Noah's Chairlady and CEO, Ms. Wang, Jingbo.

--------------------------------------------------------------------------------

Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [3]

--------------------------------------------------------------------------------

[Interpreted] Thank you, Zhao, Yi. The most significant macroeconomic risks that China is currently facing are Sino-U. S. Trade relations externally and the debt burden domestically. The key goals of debt reform in China are to dismantle implicit guarantees and promote financial supply-side reform. As these reforms are gradually implemented, they're profoundly affecting Noah's core wealth management and asset management businesses.

As we have observed previously, China's wealth management and asset management industries have encountered some structural contradictions. First, implicit guarantees have seriously distorted the market-oriented development in China. Without the elimination of implicit guarantees, it is difficult to solve the "bad money drives out good money" problem. Second, more and more financial consumers suffered losses amidst the removal of implicit guarantees in the P2P industry, which caused tremendous pressure on the government to maintain social stability and created uncertainties with respect to regulatory policies and orientation. Third, the size of assets held by China's high net worth clients has been rapidly increasing, but we're seeing clients developing more conservative expectations as a result of China's accelerated economic downturn. We believe it will take some time for portfolio and NAV-based products to be fully accepted by clients.

Fortunately, for the past 15 years since Noah started this business in 2005, based on our understanding of the industry, we have never been involved in any capital poor businesses. Fund products, either distributed by Noah or actively managed by Gopher, are all operated independently of each other and held in escrow by third party and reputable custodian banks or institutions without any duration mismatch, highly leveraged financing or implicit guarantee, et cetera. Therefore, Noah has been able to stay away from pervasive risks that were spread over different products or asset classes even during several rounds of economic downturns or facing various financing risks.

Next, I would like to share with you some updates on our major products and strategies in the second quarter. In the second quarter of 2019, transaction value of Noah's private equity products amounted at CNY 7.66 billion, increasing 22% year-over-year and 475% quarter-over-quarter. As of the end of the second quarter, AUM of Gopher's private equity fund has reached CNY 104.4 billion up 11% year-over-year and accounting for 58% of the total asset under management.

Among all projects invested by Gopher's private equity fund, 196 companies have gone public in domestic and overseas capital markets. In 2019 alone, 18 Gopher-invested companies have completed IPOs. Meanwhile, Noah and Gopher have also benefited from the commencement of the Sci-Tech Innovation Board, which was officially launched in July. Among all enterprises that have been listed on the Board or approved by the CSRC, Gopher has indirectly invested in 8 of them. With further development of China's capital markets and expanded options for exits, more unicorns and emerging industry companies are expected to go public and bring investment income to clients.

For public security products, in the second quarter, the transaction value maintained a good momentum raising over CNY 6 billion, up 88% quarter-over-quarter. Noah and Gopher continued to put more efforts in developing standardized products, adhering to the comprehensive asset allocation strategy in a volatile market environment. We're also strengthening our in-house research, risk control and credit rating teams, providing relatively low volatility and absolute return to your high net worth clients is the long-term goal of our fund managers.

The bond funds launched by Gopher in 2019 grew rapidly. By the end of the second quarter, the AUM has exceeded CNY 3 billion. Developing standardized products will be one of Noah's core strategy going forward. We will proactively trim down our private credit products under management and focus on meeting client demands for fixed income products with bond funds.

In the first half of 2019, the investment return of Gopher-managed secondary market fund of fund and MoM flagship funds both exceeded 10%. Specifically, the flagship MoM fund has realized a positive return of 16.21% while quantitative FOF yielded a positive return of 7.86% and maintained a low volatility rate of 3.81%.

Gopher's offshore secondary market strategy is similar to onshore and has also achieved good returns. Since its inception in August 2013 to the first half of 2019, Gopher offshore China selected FOF has achieved an APR of 13%, outperforming MSCI China and CSI 300 Index to a large extent.

For the second quarter, the AUM of our U.S. dollar denominated bond fund reached a balance of over CNY 500 million and increased by 3.67x comparing with the previous quarter.

For the real estate fund, we will continue to expand and focus on multiproject-based preferred share funds and core asset acquisition funds. As of the end of the second quarter of 2019, the AUM of Gopher's real estate preferred share funds have exceeded CNY 7 billion and the total AUM of real estate investment reached CNY 19.2 billion, up 9% year-over-year. Among the real estate projects actively managed by Gopher, 114 projects have matured, including 25 equity projects with an average IRR of 16.47%, nearly 70% of equity-based funds achieved a 10% IRR or higher.

Gopher's discretionary and multi-strategy funds and family offices have also attracted more attention from ultra high net worth clients. By the end of the second quarter of 2019, the AUM of multi-strategy investments reached CNY 8.5 billion, significantly up 29 -- 92% year-over-year. In addition, Gopher is currently running about 10 family offices to meet the personalized needs of ultra high net worth clients and also actively engaging with several other potential clients.

Next, I would like to provide a brief update on the current situation and progress of the Camsing incident. At present, we understand that the criminal investigation by the Public Security organization in China is still ongoing. According to the media reports, the police have arrested a number of suspects for suspected fraudulent activities. The Camsing incident appears to be a carefully planned fraud involving many large e-commerce platforms and financial institutions. Gopher and our clients are among the victims of this suspected fraud. We proactively reported to the police after discovering the problem to protect our clients and shareholders. We take this matter very seriously and pride ourselves on operating our business with integrity and ethics and consider protecting the security of our clients' assets as our top priority. At the same time, we continue to offer full cooperation to the government investigations looking into this matter.

The products in cooperation with Camsing, namely the Chuangshi Core Enterprise Private Fund (sic) [Chuangshi Core Enterprise Series Private Equity Fund] managed by Gopher, mainly provided supply chain financing involving third-party companies related to Camsing International Holding Limited in connection with accounts receivable between such companies and Beijing Jingdong Century Trading Company, Limited. Since 2016, Gopher has been conducting due diligence and risk management measures with respected -- with respect to the loans and the applicable counterparties. Up to now, we have submitted detailed evidences to the Public Security organization and filed a civil lawsuit to the Shanghai Financial Court demanding JD.com to assume the debt repayment obligation and for Camsing, (inaudible) and other parties to assume joint guarantee obligations. The civil lawsuit has been accepted by the courts, and we're waiting for the trial to commence.

At the same time, we are also actively seeking to preserve relevant assets, including but not limited to freezing bank accounts, increasing stock pledges and stock freezes and tying up other physical assets among other things. At this time, both the criminal investigation and civil cases are ongoing. And it is premature to assess the recovery rate of fund assets.

To reiterate, Gopher takes the fiduciary duty of the fund manager with the utmost seriousness and remains 100% focused on achieving the best possible results for its clients who invested in the affected credit fund, honoring the trust and confidence from our clients and shareholders.

In addition to assisting the judicial authorities in their investigations, we also continue to cooperate and communicate with regulators. At present, both the regulators and Noah are waiting for the results of the criminal and civil lawsuits as well as further clarification of the incident. After the incident, the S&P Rating (sic) [S&P Global Ratings] team reconducted due diligence on Noah based on current available information and reaffirmed that our corporate credit rating maintained at investment grade.

In terms of client communication, we issued announcements to respective clients on June 24 and July 8 to inform that we are extending the redemption date for an additional 6 months to 1 year in accordance with the fund contract. And we will continue to communicate with affected clients as the situation develops. According to our data, we estimate that their investments in the affected credit funds account for about 20% of their total asset at Noah on average.

We're also conducting an internal review on this incident. Up to now, no similar risks were identified in other existing products and the product specific risk of Camsing-related funds will not affect other products previously distributed by us. To reassure clients, from June 18 to July 31, 2019, Noah distributed CNY 10.8 billion of investment principle and profits to more than 6,800 domestic and overseas clients, of which over 40% were redeemed prior to the contractual date upon agreement with the counterparty. During the same period, almost 2,000 clients chose to purchase our products and services and invested over CNY 7 billion with Noah. Notably, near 10% of clients affected by the Camsing incident have placed new orders at Noah. We're very pleased to see the gradual recovery of client confidence.

In the past 13 years, Noah has cumulatively distributed over CNY 700 billion worth of financial products and the AUM managed by Gopher has exceeded CNY 180 billion. The total principal amount of the loans extended by the credit fund to Camsing-related parties accounts for less than 2% of Gopher's AUM. However, the Camsing incident has affected our clients, shareholders as well as Noah's reputation, and I am deeply disappointed to see the situation as a member of senior management and the leader of the company.

Meanwhile, I want to reassure that we will continue to use best efforts to protect and promote the interest of our clients. At present, our firm is committed to comprehensively promoting business and product transformation while embracing financial supply-side reform promoted by regulators. We will continue to provide comprehensive asset allocation advices to clients and select NAV-based product -- portfolio products as the only choice. The strategic transformation from private credit funds to bond fund, from product-driven to comprehensive service-driven strategy and from increasing transaction value to enhancing investment capabilities of active management is our future direction.

Finally, I would like to address that Noah will always trust common sense, respect the market and stick to its fundamental mission. With the passage of time, I believe that Noah's resilience as well as that of the market will show through. Through the experience and handling of this incident, we believe that our team will be stronger, more effective and able to turn this bump in the road into promising opportunities.

Thank you all. Now I'll turn the call to our CFO, Shang, to share the second quarter financial results.

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [4]

--------------------------------------------------------------------------------

Thank you, Chairlady, and hello, everyone. We had a solid quarter [that -- by] renewed market volatility, which we believe demonstrates the resilience of our business.

For the second quarter, net revenues were CNY 871.6 million, up 9.3% year-over-year driven by a strong increase in onetime commissions and other service fees. Non-GAAP net income was CNY 263.4 million, up 6.4% year-over-year. And margin was healthy at around 30%. For the first half of 2019, we realized non-GAAP net income of CNY 568 million, up 13.2% over the same period last year.

Our wealth management business had a weaker transaction value of around CNY 24.4 billion. But the overall product mix was much more diversified with private equity and public security contributing more than 55% of the total. Net revenues were CNY 625.6 million, up 12.4% year-over-year resulting from higher effective onetime commission rate of 1.2%.

Gopher Asset Management achieved strong AUM growth, one of the most significant drivers for the segment. Total assets under management was CNY 180.8 billion, or USD 26.3 billion, at the end of the second quarter, up 11.9% year-over-year and 5.7% quarter-over-quarter.

Net revenues of the asset management segment were CNY 171.1 million, a decline of 12.5% year-over-year as a result of lower performance-based income this quarter. We think performance-based income will be a key component of total revenues going forward as we continue to strengthen our investment capabilities and realize more investment gains on behalf of our clients. It is worthwhile to note that close to 60% of our total AUM has performed these clauses.

Now turning to our lending and other businesses segment. Net revenues were CNY 74.9 million, up 64.1% year-over-year, making up less than 10% of total group revenue. Income from operations for the segment were CNY 35.2 million. Operating profit for the second quarter was CNY 251.9 million, up 13.9% year-over-year. We continue to manage costs and expect additional savings to be realized in the next few quarters. Total relationship managers' compensation was only up 4.4% year-over-year at this quarter. Compensation for the -- for other employees increased by 17.9% as we optimize our mid- and back-office function. And we expect to see the cost benefits going forward.

SG&A for the quarter decreased by 13.3% as we focus on improving operating efficiencies. However, we do expect an increase in legal and other expenses related to Camsing incident. We continue to pursue actions to protect the interest of affected clients and recover assets as explained by Madame Wang. Overall operating margin was 28.9%, up more than 100 basis points compared to the corresponding period in 2018.

Moving to our balance sheet. We continue to maintain a healthy financial position. And recently, Standard & Poor (sic) [Standard & Poor's] reaffirmed our investment grade rating. One of our largest assets on the balance sheet is investment alongside funds we managed. Investment in affiliates totaled CNY 1.4 billion or USD 206 million at the end of the quarter. We expect this to appreciate over time, and future monetization will further enhance our liquidity. Accounts receivable from Gopher managed fund increased this quarter with a strong growth in AUM.

Lastly, I want to comment on our update to the 2019 forecast. In consideration of macroeconomic conditions in China, ongoing geopolitical tension as well as the expected short-term impact resulting from the Camsing incident, we estimate that non-GAAP net income for the full year will be in the range of CNY 1 billion to CNY 1.1 billion.

We believe that the strength and reoccurring nature of our core businesses allows us to ensure profitability as we strategically upgrade our business for higher quality and sustainable long-term growth.

With that, we are happy to open the call for questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Okay. We -- the first question comes from Martin with -- Martin Ma with Nomura.

--------------------------------------------------------------------------------

Martin Ma, Nomura Securities Co. Ltd., Research Division - Associate [2]

--------------------------------------------------------------------------------

So let me first ask a question in Chinese and then I will translate into English. (foreign language) My first question is about the -- just the -- it is about the difference -- it's about the -- your overseas strategy. We have seen that -- from the second quarter reports that the revenue from Mainland China increased by only 1% but overseas business increased by 39%. And we want to understand what is your future strategy in terms of overseas business expansion and what kind of -- what is your key focus in terms of products and the clients. And the second question is about lendings and other segment. We have seen that the launch [in Asia] decreased by 12.5% year-over-year but the revenue from that segment increased by 54%. So what is the main reason for that difference?

--------------------------------------------------------------------------------

Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [3]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [4]

--------------------------------------------------------------------------------

[Interpreted] Yes. So I'll answer question #1. So our current offshore business is primarily in Hong Kong. And we have expanded in regions such as the U.S., Singapore, Canada and Australia. Over the years, we have seen very strong demand and needs from our clients in terms of global diversification and our expansion in offshore business is meeting the demand.

--------------------------------------------------------------------------------

Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [5]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [6]

--------------------------------------------------------------------------------

[Interpreted] Yes. So in terms of the product side for the offshore market, it's a very -- much more mature market compared to emerging markets. And our clients are primarily overseas Chinese, and the products we are focusing on are more standardized and more established funds.

--------------------------------------------------------------------------------

Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [7]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [8]

--------------------------------------------------------------------------------

[Interpreted] And in addition, expanding Gopher's active management capabilities and products is also a very strong focus. I've mentioned earlier, we saw very good growth on this regard. And we're focusing on a fund of fund business, both in terms of private equity as well as public security.

--------------------------------------------------------------------------------

Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [9]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [10]

--------------------------------------------------------------------------------

Yes. And I'll answer the second question. So the question is regarding our lending and other businesses. Yes, for the second quarter, new transaction or new lending was slightly down at year-over-year but revenue was up 64%. This is due to the fact that there's quite a bit of reoccurring revenue or reoccurring service fees for the lending business because it is the servicing agent for previously originated loans that they had sold to third party.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

And the next question comes from Katherine Lei with JPMorgan.

--------------------------------------------------------------------------------

Katherine L. Lei, JP Morgan Chase & Co, Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

Shang, I have 2 questions. So the first question is on the overseas business too because as Madame Wang have mentioned it, Hong Kong is a key hub for your overseas development. But with the latest development in Hong Kong, have you seen any slowdown in product purchase by clients in the 3Q? So this is the first thing. Second thing is just surrounding the Camsing incident. So I would like to know, like -- because by media, so there were -- like the parties which were helping the investigation, I mean, are you being arrested? They were not only not the counterparties. So I would want to know like what is your assessment or the legal team's assessment on -- if Noah will need to resume -- like if Noah will have any risk of, like, also being held accountable to compensate a part of client's loss, if any, in this incident? Yes. So this is my primary 2 questions.

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [13]

--------------------------------------------------------------------------------

Okay. If you will give me a minute or 2 to translate for the benefit of the wider team. One second.

Okay. Okay.

--------------------------------------------------------------------------------

Yi Zhao, Noah Holdings Limited - Group President [14]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [15]

--------------------------------------------------------------------------------

[Interpreted] So on the first questions regarding our Hong Kong business in the third quarter, as mentioned earlier in my remarks, I think ongoing geopolitical tensions in a lot of places is one of the risks to our business. In the third quarter's -- for Hong Kong, we did see a slower interest from clients because oftentimes, clients would visit a Hong Kong office but travel has been a lot subdued in the third quarter.

And for the second question, Madame Wang will answer that question.

--------------------------------------------------------------------------------

Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [16]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [17]

--------------------------------------------------------------------------------

[Interpreted] Yes. So the Camsing incident is still under criminal investigation. A lot of the information is kept confidential by the police authorities. So I think it's difficult for us to really assess what will be the various outcome for the various parties involved.

--------------------------------------------------------------------------------

Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [18]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [19]

--------------------------------------------------------------------------------

[Interpreted] So as mentioned, I think the police are working very hard on the overall case. We, as a victim, we are assisting the investigation. But in terms of information provided to -- from the police to us in terms of the progress, it's very limited. So like a lot of research analysts on the call, we have been actively monitoring the media report to assess some of the latest updates.

--------------------------------------------------------------------------------

Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [20]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [21]

--------------------------------------------------------------------------------

[Interpreted] So it has been reported on a lot of various media that the overall Camsing incident is a very large-scale fraud. We have been very highly concealed in terms of the misconduct. It has affected a lot of large e-commerce platform as well as financial institution. And so we are actively monitoring the various updates whether from the media or from the official authorities.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

And the next question comes from George Cai with JPMorgan.

--------------------------------------------------------------------------------

Lingfeng Cai, JP Morgan Chase & Co, Research Division - Analyst [23]

--------------------------------------------------------------------------------

I have 2 questions. The first one is regarding our wealth management sales in the third quarter. So we noted that the sales has dropped quarter-over-quarter mainly driven by the credit products. So 2 questions here. Why is there a drop in credit products and there's a surge in public security products? Is it because of the effort of transferring some of our nonstandardized credit products into the standardized one? And then second, we noted a pickup in private equity products. Could you share with us more color on that and the potential outlook in the second half of 2019? And then my second question is on fee rates. So we noted that recurring fee rates in second quarter has dropped by 4% year-over-year. And then if we look at the growth basis of our recurring fee rate of asset management business by adding up both the income from asset management and wealth management, the fee rate seemed to drop year-over-year. So could you share with us the fee rate trend going forward?

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [24]

--------------------------------------------------------------------------------

Sure. Again, if you give me a minute or 2, I'll translate your 2 questions for the wider team.

--------------------------------------------------------------------------------

Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [25]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [26]

--------------------------------------------------------------------------------

[Interpreted] Yes. So now I want to comment on the first question. So I think you accurately identified -- I think we have been, since the beginning of this year, actively transferring our private credit business into more public security. We think that it is a better strategic decision in terms of managing and risks. So I think that is one of the reasons that you saw the transaction value for public security in the second quarter to go up quite meaningfully. And if we continue to implement and execute the strategy, we expect that it will continue to demonstrate good growth.

At the same time, I would like to slightly comment that for public securities, on the credit side at least, for bond fund, the management fee or reoccurring fee will be slightly lower than private credit funds. So we think that it is, again, still a better strategic decision to pursue public securities, bond fund assets, protect -- better protect our client in the current operating environment. Now in terms of private equity, yes, I think overall private equity fundraising in China continues to be difficult. But I think we have had some success in the second quarter because we have very strong long-term relationship with very key asset managers. And this momentum, we have seen it continue in the third quarter.

Now on -- the second question is regarding the reoccurring fee. So reoccurring fee year-over-year is slightly lower. This is because for the middle of last year, primarily the second and third quarter, there were a couple of products with high reoccurring fee that matured. And some of the reoccurring fee was a bit more back-ended. Now the overall Gopher asset managed product, the blended growth management fee is about 68 basis points. It has been fairly stable over the last few quarters. I think there are 2 factors that play here. One is as we strengthen our investment capability and do more direct investment on the private equity and real estate side, I think that will be a positive for overall blended management fee rate. But on the flip side, as Madame Wang mentioned, as we transfer our private credit business into a public security bond fund, the management fee rate will be slightly lower. So I think it really will depend how our product mix lay out over the next 1 or 2 years. But I want to comment that achieving a blended growth management fee rate of around 67, 68 basis points is actually a very good metric compared to other asset managers globally.

Operator?

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

Yes. All right. And at this time, I would like to return the floor to management for any closing comments.

--------------------------------------------------------------------------------

Shang Yan Chuang, Noah Holdings Limited - CFO [28]

--------------------------------------------------------------------------------

No closing comments. Thank you, everyone, for attending our second quarter earnings call. Thank you very much.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Right. Thank you. The conference has concluded.

Thank you for attending today's presentation. You may now disconnect your lines.

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