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Executives

Jingbo Wang – Co-Founder, Chairwoman and CEO

Tom Wu – CFO

Shang Chuang – IR Director

Analysts

Fiona Zhang – Oppenheimer & Co.

Michael Li – Bank of America-Merrill Lynch

[Chris Yao] – [Yimitel Management]

[Chris Resler] – [Open Door]

Noah Holdings Limited (NOAH) Q4 2012 Earnings Conference Call February 25, 2013 8:00 PM ET

Operator

Good day, ladies and gentlemen. Welcome to the Noah Holdings Limited Fourth Quarter 2012 Results Conference Call.

At this time all participants are in a listen-only mode. Following management's prepared remarks, there will be a question-and-answer session. During the question-and-answer session, we ask that you please limit yourselves to two questions and one follow-up so that we may have further participation. If you would like to ask further questions, you may re-enter the queue to do so. As a reminder, this conference is being recorded.

Joining the conference today are Ms. Jingbo Wang, Co-Founder, Chairwoman and CEO, and Mr. Tom Wu, CFO.

After the close of the US market on Monday, Noah issued a press release announcing its fourth quarter 2012 financial results, which is available on the company's IR website at ir.noahwm.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 statement in connection with today's call. The company will make forward-looking statements, including those with respect to expected future operating results and expansion of its business. Please refer to the risk factors inherent in the company's business and that have been filed with the SEC. Actual results can be materially different from any forward-looking statements the company makes today. Noah Holdings Limited does not take -- does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under applicable law.

The results announced today are unaudited and subject to adjustment 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.

I would now like to hand the call over to Ms. Wang, CEO. Ms. Wang will be speaking in Chinese and Mr. Shang Chuang, the company's IR Director, will translate her statement into English.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

Thank you, operator, and thank you all for joining us today. With me today is Tom Wu, our Chief Financial Officer. I will start by reviewing our business in 2012, then discussing our strategy for 2013. After that, Tom will discuss the details of our financial and operating results. We will be happy to take your questions after that.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

We concluded 2012 with a strong fourth quarter, where we achieved transaction value of RMB6.3 billion, a 47% increase year over year, and non-GAAP net income of USD7.6 million, a 78% increase year over year. For the year, we distributed RMB25 billion or USD4 billion worth of products, an 11% growth to 4,152 active clients, and the number of registered clients reached 40,305.

As of the end of 2012, our asset management business, Gopher, has over USD1.2 billion of AUM, almost five times the amount compared to the end of 2011. We nearly -- we achieved net revenues of USD86.7 million, a 20% growth compared to the previous year, and non-GAAP net income of USD26.8 million, exceeding our full-year forecast.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

Despite a challenging 2012, global uncertainty and weakness in China's economy to name a few, we made meaningful strategic progress which we believe have laid foundation for sustainable growth in the future. I would like to briefly review for you some of the key initiatives we made in 2012.

First, we broadened our business platform as well as regulatory recognition. Noah Upright obtained an independent mutual fund distribution license from China Securities Regulatory Commission, CSRC. We established a subsidiary in Hong Kong to start sourcing offshore products to service our clients, gaining further client wallet share. Noah Hong Kong also received comprehensive regulatory approvals from Hong Kong Securities and Futures Commission, setting the stage for internationalization.

Second, we successfully expanded our asset management business, Gopher. We believe asset management will become one of the two pillars for growth for Noah going forward. The other one of course is our distribution business.

Last but not least, we focused a substantial part of our effort improving management infrastructure and operational efficiency. I cannot overemphasize the importance of them as these improvements not only helped us digest our fast growth over the past two years, but equally important, provide a solid basis for scalable growth going forward. Specifically, we have improved management efficiency by optimizing regional management and expanded the manager responsibilities and thus increasing their drive. Our strong performance in the fourth quarter, seasonally a weak quarter, reflects some of the management improvement we have made which have translated into higher efficiency and productivity.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

I would like to provide more details on the growth of our asset management capabilities. The strategic objective for Noah is to become a leading wealth management company with asset management capabilities. We believe our distribution franchise and asset management business are complementary, and they are the two primary engines of growth for us going forward.

In 2012, we made significant progress in developing our asset management business. Gopher AUM grew nearly five times to RMB7.7 billion or USD1.2 billion as of the end of 2012, and we will continue to expand our AUM in 2013.

The growth of our fund of funds business now only strengthens our [fund] initiatives with key fund providers in both private equity and real estate, but also provide customized wealth management solutions to our clients. It is worth to note that in 2012 Gopher team has grown to 40 people and we continue to hire experienced investment professionals.

In 2013, Gopher will continue to broaden management of different asset categories and develop family wealth management for key clients. The growth of our asset management business will not only increase our recurring fee revenue, which is driven more by AUM and provide even more financial stability and visibility, but will also increase client loyalty.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

I would also like to comment on the latest regulatory development and what it means for our strategy. We are seeing a shift towards greater market liberalization on the back of reforms promoted by the regulators. With further financial market reforms, China's wealth management industry is entering an era of asset management. In the past few months, CSRC has allowed securities firms and mutual fund companies to broaden its business scope to include non-listed securities. In effect, securities firms and mutual fund companies now provide an alternative platform to trust companies, which gives us more opportunities. With this development, we have extended our cooperation with various financial companies in the market.

Also CSRC has announced its intention to encourage more securities firms and asset management companies. Earlier this month we have jointly established a new asset management company with [Wan-Jap] asset management, creating a new strategic platform partner. China Insurance Regulatory Commission, CIRC, has also rolled out regulation promoting insurance companies to expand into wealth management. As you may recall, we have an insurance distribution license which we plan to leverage to broaden our product offerings. What this all means to our business is that we will have more product diversity for our clients and more partners to cooperate with, both of which are positive for our business, let alone further regulatory support.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

These market reforms will accelerate the development of the wealth management industry in China. CSRC Chairman, Guo Shuqing, commented that, with time, half of China's RMB8 trillion deposits will flow into the wealth management industry. Our understanding of the industry as well as our brand, [team], platform, client base and technology gives us full confidence to lead the growth of the industry.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

I would like to share with you our 2013 outlook in broad terms, specifically in product and branch coverage plans.

Our product development plan this year is to further augment the breadth and depth of our product offering to meet the evolving needs of our clients by providing a diversified product portfolio across asset categories, onshore and offshore. Specifically, we will continue to grow our fixed income product. Given the market reforms, we have more choices than ever before to select fixed income products beyond traditional trust format, which I discussed in the aforementioned regulatory liberalization.

Private equity will continue to be an important part of overall asset allocation. As you know, the current environment for private equity remains soft, but we strengthened our leading position in this sector by successfully raising the largest fund in the market in 2012. For 2013, we will focus on covering the leading investment managers and launch innovative products which meet market demand.

Real estate funds will continue to expand as we build our 2013 pipeline. This is important as part of China's continuing organization process and real estate securitization develops in China. Real estate securitization is still in an early stage in China, and we believe we are well-positioned to further cultivate this product category.

For Asia products or local Chinese equities, we want to increase clients' overall exposure to the sector. Although it has been challenging engaging our client to Asia product in 2012, I am glad to report that clients who have invested in our products have benefited and benefited significantly. We expect continued demand for Asia related products with the recovery of domestic equity markets.

Finally, we will also continue to develop our offshore products as well develop new products such as high-end insurance products which I have mentioned earlier. We have completed initial product development for that product category.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

In terms of branch network, we'll open additional branches in areas where we do not have existing presence. In addition to expanding breadth of coverage through opening new branches, we will also focus on deepening penetration of areas with existing branch coverage. We will continue to strengthen regional management by -- and we aim to improve productivity of our branch network and relationship manager sales force. Some of the improvements have already been felt as part of our financial results in the second half of 2012.

Finally, I want to emphasize the importance of technology. This is important element in scaling our business as well as client interaction and satisfaction. We will continue to invest in our technology platform. In addition, we plan to further improve our operational efficiency.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

Finally, I wanted to again share with you my enthusiasm and optimism for China's wealth management industry. 2013 almost undoubtedly is a significant year for our industry with substantial growth potential. In 2012 I believe Noah had found its positioning in two fast-growing industries, wealth management and asset management, and obtained a ticket, if you will.

But I want to close my portion of the comment by emphasizing the importance of execution for our company's development by sharing a quote, a quote by Mr. Ren Zhengfei, Chief Executive Officer of Huawei Technologies. He said, and I quote, "It is not necessarily your background or even resources that may be available to you. You control your destiny by focusing on execution, execution through focusing on your own, execution through a culture of disciplined systems and a culture of winning." We will relentlessly work hard with a strong focus on clients above all else.

With that, I will ask Tom to share with you our financial and operating metrics for 2012, and forecast for the full year 2103. Thank you.

Tom Wu

Thank you, Madam Wang, and good morning and evening, everyone.

We had a robust fourth quarter to close out 2012. Year-over-year revenues and net income growth were both over 70%, which were some of the fastest growth rates for the company we have seen in recent years. The ongoing improvements Madam Wang mentioned in how we manage our distribution business, product sourcing, as well as the significant progress we've made in our asset management business, were some of the primary drivers for the growth. Macro environment also remained relatively stable, allowing us to focus on execution. For the year we were able to surpass our revised full-year guidance.

Total net revenues for the quarter reached USD25 million. This is the second highest quarterly revenue that the company has ever achieved, even though fourth quarter tends to be weaker due to seasonality. Revenue growth was driven by strong distribution value, with the overall transaction value reaching USD1 billion, a 47% growth on the year-over-year basis, and increasing recurring revenues, which is partly contributed by our growth asset management business.

Fixed income products represented 80% of the overall transaction value, the highest percentage in recent years, probably reflecting continued client risk aversion. We were also able to diversify our fixed income products beyond the traditional trust structure, as Madam Wang mentioned, the ongoing liberalization allowing more platforms such as wholly-owned subsidiary of mutual fund company other than trust companies through packaged products. While these non-trust fixed income products are similar in nature as those packaged in trusts, we tend to receive both one-time distribution commission as well as recurring management fees.

Consequently, it may lower our effective offered commission rate, but most likely increase overall revenue over the life of the product. Effective commission rate for the last quarter was 1.2% lower than that of the third quarter, primarily because of some of the changes I just mentioned.

I would now like to clarify again the increasing related party revenue, which represented 42.7% of total net revenue this quarter. This increase is primarily due to increasing products purchased by clients that are managed by our own asset management arm, Gopher. As we commented earlier, our asset management business has grown significantly. It currently manages about USD1.2 billion, up from USD800 million the previous quarter.

Recurring revenue was 52% of fourth quarter revenues, exceeding 50% for the first time. With the growth of our asset management business, we believe recurring revenues will continue to be elevated, possibly remaining above 50% for the full year of 2013. This obviously will depend on execution of our business plan, including revenue mix from our distribution business and growth of our asset management business. We continue to believe our recurring revenue enhances revenue visibility and stability for our business.

I would now again like to quantify recurring revenues Noah expects to receive in the future for products previously distributed and assets under management. As you know, these recurring management fees are typically collected over the product's lifecycle up to about five years. As of the end of the fourth quarter, the total amount of management fees contractually obligated for products already distributed and under management is about USD180 million, up from USD170 million the previous quarter, over the next five years. This is again in addition to the amount of cash that we have on the balance sheet, and on a per ADS basis, this translates into roughly about USD3.3 per ADS.

We again set a record in total active clients this quarter, 1,636 this quarter. This number also includes clients who purchase mutual fund products. On an apples-to-apples basis, this is excluding clients who purchased mutual fund products only, active client number was 1,300, which again is the highest active client number in a given quarter for the company. Average transaction value per active client was RMB3.8 million. Excluding mutual fund clients who have lower purchase amounts, it was RMB4.83 million or about USD775,000 per person, lower than that of the previous quarter. This is partly due to increasing percentage of fixed income products clients' purchase. Fixed income products typically have lower thresholds for purchase amounts. Again, fixed income represented about 80% of total client transaction amount in the fourth quarter, contributing to a lower value per active client.

Profitability improved on a year-over-year basis, reflecting economies of scale as revenues surged this past quarter. Gross margin was 81.9% over -- up significantly from 74% a year ago. And operating margin improved to almost 31.8%, up from 19.4% a year ago. We'll continue to focus on delivering profitable growth in 2013.

Balance sheet is strong. The amount of cash, short-term and long-term investments, was about 172 million or about 8.4 million higher than that of last quarter. Our business continues to generate solid cash flow with operating cash flow of about USD9.4 million this quarter, and we spent about USD2.3 million executing our stock repurchase program this quarter. Accounts receivable base is in line with longer-term average, about 56 days.

As part of our fourth quarter earnings release, our Board of Directors has approved an annual cash dividend payment. This is the second annual dividend since we first started to pay cash dividends a year ago. The payout ratio remains at 30% of our non-GAAP net income, which was USD26.8 for 2012. On a per ADS basis, the dividend per ADS is USD0.14.

We continue to think that our cash dividend payment demonstrates the confidence that we have in our business, its strong cash flow generative nature, transparency, capital discipline, and commitment to provide shareholders another form of return in addition to potential capital appreciation.

Lastly, I would like to comment on our guidance range for 2013. We're continuing to provide an annual guidance in the form of non-GAAP net income for the year, partly because the results tend to fluctuate on a quarterly basis from seasonality. We think our 2013 non-GAAP net income will likely to be between USD33 million to USD37 million. The midpoint of the range represents growth rate of about 30% on a year-over-year basis. The growth rate reflects strong fundamentals in our business as well as some of the key strategic initiatives Madam Wang mentioned in her remarks, and our focus on execution.

With that, Madam Wang and I will be happy to take questions that you may have. Operator?

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions].

Your first question comes from the line of Ella Ji of Oppenheimer. Please go ahead.

Fiona Zhang – Oppenheimer & Co.

Hi. Good morning, everyone. It's Fiona calling on behalf of Ella. And firstly, congrats on a strong quarter, and I have two questions today. The first one is, since we have seen this strong property market during the past months, I was just wondering, can you comment on the recent trends of your real estate funds? Are they also coming back with the market? That's my first question.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

I'm sorry. Your question is on the performance of the real estate fund?

Fiona Zhang – Oppenheimer & Co.

Yeah. Just for maybe 1Q '13, just the recent trend you have seen.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

So I would characterize our business growth in the past two quarters are, specifically the second half, to come from a couple of areas. One obviously is management infrastructure and operating efficiencies that we have gained. To a certain extent, we're seeing economy of scale. Your question about real estate, I think we have made good foundation for growth in this area going forward. Specifically, in 2012, we successfully launched top 50 of China real estate funds.

With this product, we successfully established strategic relationships with the best-in-class product development companies in China, some was very large scales, above 100 billion, and some in the 10 billion categories. And with this partnership, we have secured good projects. I think this all lays a very good base for our asset management in this category. And also we think that we have entered the real estate asset management in a very good time. It is now the [trough] of China's real estate or the low part of China real estate cycle. So the projects we have completed, I think clients should expect pretty good yield. So I think we have planted a good seed, and so we expect good growth going forward.

On a macro level, in China's real estate industry, I think timing will still continue. It'll be a norm. But we have found our positioning to really tap the securitization of China's real estate industry.

Fiona Zhang – Oppenheimer & Co.

All right, got it. That's very helpful. (Chinese language spoken)

And my second question is, have you seen any improvements in your clients' risk appetite in recent months? And also, could you let us know the average duration of your fixed income products during 4Q? Thanks.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

Yeah. From client risk appetite, I think compared to the fourth quarter in 2011, we saw some improvement with China's economy getting stronger, we're seeing recovery in client confidence. So I think last year in the fourth quarter, I think we didn't make changes to our product mix, especially in the terms that clients were also looking for shorter-duration products. So this year we spent a lot of time developing a wide range of duration products, some long, some short.

Tom Wu

Fiona, I would just like to back up what Madam was talking about. The average duration for our fixed income portfolio for the fourth quarter is fairly consistent with out of the third quarter, 1.6, 1.7 years. So, obviously it's not a huge improvement yet compared to, say, a year and a half ago. But if you were to rewind back to the beginning of the year, that particular metric was in the low 1's, 1.1, 1.2 or so.

So as we commented earlier, certainly there's continued risk aversion on the part of clients. You know, if you look at our portfolio attribution, a lot of that is coming from fixed income. But environment seems to be stabilizing and improving somewhat. So we're hopeful that as the economy continues to stabilize, if not improve, we'll see improvements on that front. Hopefully that will answer your question as well.

Fiona Zhang – Oppenheimer & Co.

Yeah, yeah, that's it. So I'm sorry, is there any changes during this quarter in 1Q '13, have you seen, or it's just sustainable, it's just consistent?

Tom Wu

It's obviously too early to comment on the first quarter, especially that there was a long holiday for the last two weeks or so for Chinese New Year. But we have not seen any meaningful changes in a qualitative way, either direction.

Fiona Zhang – Oppenheimer & Co.

Okay.

Operator

Your next question comes from the line of Michael Li of Merrill Lynch. Please go ahead.

Michael Li – Bank of America-Merrill Lynch

(Chinese language spoken)

Shang Chuang

For the benefit of the audience, I will translate the question from Michael Li of Merrill Lynch.

So, first, congrats on good results. First question is, compared to when Noah IPO-ed back in end of 2010, it was -- Noah is primarily a distributor. But now, as you mentioned, Noah had two engines of growth, distribution and asset management. If you look forward two to three years, how do you see your asset management business? What will be the AUM, what will be the profit contribution? If you can, can you provide us some color what it is now?

My second question is on Sequoia's stake in Noah. Is there any plans that they have in terms of monetization?

Jingbo Wang

(Chinese language spoken)

Shang Chuang

Okay. So our positioning is to be a leading wealth management company with asset management capabilities. We believe these two areas are complementary. And I will ask Tom to provide some more color on our asset management business development plans.

Tom Wu

Sure. Thanks, Michael, for your question. I'd just like to quantify that and give you some more color. If you look at our AUM for the asset management business, at the end of 2011 the total AUM was roughly about USD200 million, and obviously that has grown by about USD1 billion. Most of the revenues for the asset management business, well, depending on internal transfer pricing, of course, is captured in our recurring management fees.

So, as I commented in my portion of the script, management fee was for the first time more than 50% of total revenues. So what we make from asset management primarily is embedded in the 50% management fees. That's number one.

And second is going forward, if you look at our business plan that Madam Wang and I talked about for 2013, both distribution and asset management business will be driving the growth of our business. But we do see recurring management fees to be very important and we do think that most likely management fees will be probably more than 50% of our total revenues. But again, like I said earlier, it depends on how we execute our business plans in the macro environment for 2013. So it's hard to give you an exact number, but it's in that 50% -- a portion of that 50% right now.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

Yeah, also want to add some more color on this question. So when we IPO-ed, we had maintained and discussed our fund of fund business, that it had already some scale. In 2011, I told that it was a strong growth year where we grew by 100%. Asset management didn't develop as fast as we had hoped. So in 2012, we made some significant strategic changes in this regard, and so we're seeing very good results in the expansion of our asset management business.

Tom Wu

Your question on the Sequoia and their ownership in the company, I guess I'll just make two points. Number one, Sequoia is a good investor, but obviously Sequoia is a financial investor, so that's the first point, and they will inevitably exit in the next two, three years or so.

And second is, you know, we'll be very active exploring an orderly exit on the part of Sequoia. Obviously, it's not going to be overwhelming the market. So, rest assured the company, and I'm sure the shareholders will continue to explore a value-added orderly exit for Sequoia stake over the next two, three years.

Michael Li – Bank of America-Merrill Lynch

(Chinese language spoken)

Operator

[Operator Instructions]. The next question comes from [Chris Yao] of [Yimitel Management]. Please go ahead.

[Chris Yao] – [Yimitel Management]

(Chinese language spoken)

Shang Chuang

For the benefit of the audience, I would like to translate the question. Congrats on the good results. Now I'd like to ask your views on the competitive landscape. We're seeing two trends. One is trust companies are heavily developing their own sales force. Second, we're seeing growth of some other independent financial distributor such as [Hanjin]. We're seeing very good growth from them. So what is your view on the competitive landscape and how does Noah react?

Jingbo Wang

(Chinese language spoken)

Shang Chuang

So I have commented and discussed my views on the competitive landscape several times previously. To me, I think our development is not a race, rather it's a high jump. How do we continuously improve upon ourselves. So I'm not so much distracted by what the competitors are doing. I'm more focused on our own case, where we want to go in the next five to 10 years.

So the keys for the success of our business development is to continue to select the right products, select the product which revolvers around the clients' needs. So I think the reason why Noah has survived and developed so quickly over the last 10 years is that our culture is we not just simply sell products to clients but to really find right products that will add value to the clients of wealth management portfolio.

So my view is that, you know, this is why we are, you know, putting asset management on a very high priority, because with the asset management business, it will be complementary to our traditional distribution business, and that with the asset management capabilities, we're able to provide customized wealth management solutions to clients which hopefully will have more and better stable yields.

Now, it reminds me, back in 2008, you know, when I look at what happened with financial crisis, I think if you're only driven by commission, I think there will be a high risk that you'll be simply just selling products to clients disregarding their risk appetite. So I think China's asset management [era] will be very important, is what type of product you're really offering to the clients.

[Chris Yao] – [Yimitel Management]

Thank you. That's very --

Jingbo Wang

(Chinese language spoken)

Shang Chuang

So I think our goal is to, you know, seek quality growth.

[Chris Yao] – [Yimitel Management]

Thank you. That's very helpful.

The second question is about your long-term strategy. So you have mentioned before that you want to be a Ctrip in the wealth management industry. So I want to ask, what is the portion of your wealth management -- I mean -- business and distribution business in your mind is the best ratio?

(Chinese language spoken)

Jingbo Wang

(Chinese language spoken)

Shang Chuang

I think it's hard to say exactly will be the percentage mix between distribution and asset management in the future. But with financial market reform and the greater liberalization, I think we are definitely entering into an era of asset management for the broader industry. So I think distribution obviously will face some challenges going forward. With the development of the internet, there certainly will be more intermediation.

So the key is how to provide customized wealth management solution to clients to really increase their satisfaction and loyalty. So I think asset management will play a very, very important role, where, you know, we have done a lot of research and work, seeing the development of P2P lending, Taobao's entrance into the wealth management industry. All this will be challenges for the distribution business. Though for high-end clients, certainly they still have very strong need for face-to-face interaction. So we see it will be important for us to develop both our distribution business and asset management business.

Now, regarding our asset management business, I want to clear, we're not becoming competitors to our product providers. Our asset management business will focus primarily on fund of funds. Through the fund of funds, we will continue to extend our competitive advantage of selecting the funds that will bring value to clients.

So we will maintain an open architecture platform. Fund of funds will search from entire market the best funds. So the ultimate end-goal is how do we continue to add value to clients' wealth management needs.

Tom Wu

I think we should also clarify that, as we said in our prepared remarks, these are two complementary businesses and we see them both as growth engines. So in no shape or form are we trying to de-emphasize any of the existing businesses. We see distribution as critical, continue to be a growth driver, but at the same time, asset management will be a complementary growth driver because it provides customized solutions for our clients.

[Chris Yao] – [Yimitel Management]

Okay. One follow-up, one follow-up question. (Chinese language spoken)

Jingbo Wang

(Chinese language spoken)

[Chris Yao] – [Yimitel Management]

(Chinese language spoken)

Shang Chuang

(Chinese language spoken)

[Chris Yao] – [Yimitel Management]

Okay, I got that. I got that.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

Yeah. So the question is whether the development of asset management will sacrifice the distribution business. As we mentioned several times, we see that the distribution business and asset management business are complementary, and I would like to note that our asset management business has its own independent team that, you know, the main focus is to grow that business.

Next question, operator.

Operator

Your next question comes from the line of [Chris Resler] of [Open Door]. Please go ahead.

[Chris Resler] – [Open Door]

Hi, Wang, Tom. Looking at the aggregate value of distribution last year, it was roughly 80% fixed income products, 20% PE. When you're looking at this year and doing your forecast, what do you guess that the balance will be?

Jingbo Wang

(Chinese language spoken)

Shang Chuang

Yes. Regarding private equity sector, I'm still quite optimistic. In 2012 I think it was a year of consolidation for the private equity industry. I think this has given a lot of strengths to the leading GPs because these GPs now have a stronger brand name, a stronger presence in China. So last year we were raising on private equity, and ultimately the results surpassed our expectation.

So, going forward, I think it will be very bipolar. The weak will get weaker, the strong will get stronger. So the top 20% GP, I expect they will benefit 80% of the profit in this industry.

Jingbo Wang

(Chinese language spoken)

Shang Chuang

Okay. One more thing to note, you may have noticed that CBRC had issued a guidance note that banks should not be distributing private equity funds. Obviously, you know, private banks are still doing it. But I think more than ever, Noah is the preferred choice for private equity GPs in terms of fundraising.

Tom Wu

I think [Chris'] question is also about product mix for 2013. [Chris], I'll just provide maybe just three points to add some color.

Number one, it's very difficult to have a crystal ball exactly what the product mix looks like in the future. But first of all, volume most likely will grow for the distribution business, and we're pretty comfortable with that, and grow substantially.

And in terms of product mix, I would characterize it that the best look we have right now in terms of planning and pipeline is fairly balanced. Again, I think a lot of things have been said about private equity. We don't see private equity as taking a huge percentage of total product flow for 2013.

And lastly, just a little bit color in terms of how we sensitize our financial results in providing the guidance. We control or we sensitize that partly through pricing. And obviously, you know, pricing is partially driven by product mix as well. So we use a range of pricing sensitivities as well as volume growth in arriving at the forecast that we have provided, which is USD33 million to USD37 million. Anyway, I hope that's more than the answers you were looking for.

[Chris Resler] – [Open Door]

Very good. Thank you for that. And also I'd just like to say, as a shareholder, I was delighted to see the announcement of a dividend.

Shang Chuang

Thank you. And again, if you recall, when we declared our first dividend last year, we made it very clear to the marketplace that we understand market expectation, that once this tap is turned on, it's going to be a recurring event, number one. And number two, we'll continue to be very thoughtful about how much we pay out. We think that 30% of non-GAAP earnings in terms of payout ratio is very reasonable. We benchmark that against other companies, not just necessarily from China, in terms of how much they pay out their capital, notwithstanding that we are a growth company. There will be opportunities for us to use our capital going forward.

And lastly, we hope that our shareholders will benefit partly from growth in earnings going forward, even if we keep 30% payout ratio. So, obviously Board will continue to evaluate how much to pay out, and balance that out with capital needs for -- to grow our business.

Operator, I think -- any last questions?

Operator

There are no further questions in queue. Please continue.

Shang Chuang

Okay. Thank you all for joining us today, and we look forward to speaking to you next quarter. Thanks again. Have a good evening or day.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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