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Noah Holdings Limited (NYSE:NOAH)
Q1 2019 Earnings Call
May 17, 2019, 8:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to Noah Holdings Limited First Quarter 2019 Financial Results Conference Call. At this time, all participants are in listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded.

After the US market closed on Thursday, Noah issued a press release announcing its first quarter 2019 financial results, which is available on the company's IR website at 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 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 may differ materially from any forward-looking statements that 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.

With that I would now like to turn the conference over to Shang Chuang, Noah's Chief Financial Officer. Please go ahead.

Shang Chuang -- Chief Financial Officer

Thank you, operator, I want to thank -- I want to welcome all our investor and analyst friends on our earning conference call today.

For today's agenda, Mr. Yi Zhao, Group President of Noah, will briefly summarize, overall performance for the first quarter of 2019, and then discuss our strategy and improving operating efficiency. Ms. Jingbo Wang, Chairlady and CEO of Noah, will then speak about each of our product segments, as well as provide our overall views on the current industry, and regulatory environment. I will follow up with a detailed discussion of Noah's first quarter 2019 financial performance. We will conclude the call with a question-and-answer session.

Now I would like to turn to Mr. Yi Zhao for his prepared remarks.

Yi Zhao -- Group President

(Foreign Language) This is my first earning conference since taking Group President. As a long term employee who has been with Noah for 8 years, the transition during these past few months was very smooth. After a comprehensive and systematic review of the Group's business and operation we formulated short-term and medium-term goals and strategies in a short time. And after a quarter of execution we have already achieved the initial results. Today I'm very pleased to share with you the operating and the financial results we achieved in the first quarter.

(Foreign Language) In the first quarter of 2019 Noah Group achieved the net revenues of RMB890 million, up 7.1% year-over-year and 8.2%, quarter-over-quarter. Non-GAAP net income attributable to shareholders reached RMB300 million, up 19.9% year-over-year and 36.5% quarter-over-quarter. It is particularly noteworthy that the non-GAAP net margin reached the 34.2%, the highest quarterly margin for the past three years. Although there was only small amount of performance based net income recognized in the fourth quarter, we maintained revenue and the profit growth through the combination of different product and the revenue mix as well, as effective operating strategies.

(Foreign Language) In terms of business performance in the first quarter of 2019 we distributed RMB28 billion worth of wealth management products, flat compared with last year, and up 11.4% from last quarter, indicating a recovery of investor confidence. The effective one-time commission rate reached 1.16%, in line with our overall productive strategy.

The number of registered wealth management clients reached 275,000, up 39.6% year-over-year, and 5.6% quarter-over-quarter as we expanded product lines and in particular, increased the sales of public offering funds. The number of active clients increased to 8,117, up 49% year-over-year and 72.1% quarter-over-quarter. As of the end of the first quarter, the AUM of the asset management segment increased by 9% year-over-year, reaching RMB171.1 billion, up which the AUM of private equity investments funds reached RMB101.1 billion.

(Foreign Language) From 2019 we officially renamed the segment of other financial service to lending and others business. In the first quarter our lending company, Noah Financial Express originated loans of RMB2.5 billion, up 17.2 year-over-year. The net revenue of lending and other business reached RMB98.6 million, up 136% -- 132.6% year-over-year. It is the first time for this segment to reach (ph) substantial profit with operating profit of RMB45.2 million.

(Foreign Language) Meanwhile Noah's overseas business also continued to develop. As of the end of the first quarter, the overseas assets under management, reached RMB24.7 billion, up 15.6% year-over-year. Total revenues of our office in Hong Kong, the United States, Canada, Australia and other countries reached RMB250 million, accounting for 27.8% of the Group's net revenues.

Our global comprehensive service system including insurance brokerage in Hong Kong, the United States, and Canada family trust and investor education in China and overseas and etc., is getting more and more recognition from clients and also delivering increasing synergies with traditional financial product sales system. In the first quarter of 2019, the number of clients receiving Noah's value added service increased to 1,400, up 40.6% year-over-year.

(Foreign Language) Improving management operating efficiency is an important strategy I put forward at the Group level since I took this new rule. In the first quarter we mainly focused on this aspect and made important progress.

(Foreign Language) First, structural adjustment eliminating ineffective departments, merging overlapping departments and upholding flat management. In the first quarter, overall sales and the G&A expense decreased by 8.8% year-over-year and 25.4% quarter-over-quarter, which is significantly improved the operating profit margin.

(Foreign Language) Second talent upgrades, maintaining employee culture and the improving assessment standards, each department and subsidiary establish its own talents profiles. Conducting quarterly performance review and adjust unqualified staff in a timely manner. In the first quarter, the number of relationship managers decreased by 5.5% from the previous quarter. However the elite ones were all retained. Compared with the last quarter, the total staff number of the Group decreased by 2% and the labor cost decreased by 5.6% correspondingly.

(Foreign Language) Third, information technology development, developing system tools and empowering business scenario. In the first quarter, our relationship management system and clients' mobile application Micro Noah (ph) were upgraded in all aspects. We lead in domestic wealth management industry in achieving online audio and the video recording which quickly improve the sales compliance and optimized the client experience.

In addition, we launched an online relationship manager plus expert servicing core model in four core pilot cities. Based on different scenarios and the client needs, we formed the expert teams composed of relationship manager, product experts, investment consultants, Mid and back office support personnel and etc., s that service are provided through team collaborations instead of single relationship managers to meet increasingly specialized and the diversified needs of clients.

Last year, Gopher developed a fully autonomous investment management system or GIMSP, which clearly demonstrates the status of all funds and that their sub funds and sub projects, while closely tracking top down valuation through a phone reading system.

(Foreign Language) Fourth, system construction, setting up an operation management system, covering 15 important operation modules, and developing management tools and assessment system with a focus on data indicators. Through quarterly reviews and annual assessments, we consistently adjust and optimize our systems to improve operations and management of the whole Group.

(Foreign Language) For the second quarter, we will push forward the organizational restructuring and the talent upgrade and implement a series of Group level management system featured with data model, for monitoring and evaluating the operational efficiency of each business segment. We are even more confident about 2019.

(Foreign Language) Focusing on creating values for clients is Noah's principle, and continuous optimization in response to client needs is Noah's direction. As the market environment becomes increasingly uncertain. Noah will continue to build and improved management operating systems and enhance company's (ph) capabilities in research, investment, product requirement, sales and the comprehensive services, so as to become an open and global integrated, financial service companies with (inaudible)

(Foreign Language) With that I will like to I turn the call over to Noah's Chairlady and CEO, Ms. Wang Jingbo. She will speak in Chinese and her remarks will be followed by English translation.

Jingbo Wang -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) Thank you, Zhao Yi. In the first quarter of 2019. China has been adopting favorable macro policies specifically maintain a relatively illiquid monetary policy and the Asian market performed strongly in the backdrop. Looking at current economic data for Q1 including GDP, foreign trade, finance and other metrics, the economy outperformed expectations as a whole and operations of private enterprises have also improved at a certain extent.

For China's wealth management and asset management industries 2018 was a year of adjustments. According to the latest China Private Bank Report 2019 jointly issued by Boston Consulting Group and China Construction Bank despite the ongoing growth momentum in total wealth of domestic residents, the growth rate in 2018 was only 8% significantly dropping behind the compound average growth rate of 16% during prior 2013 to 2017.

Domestic high net worth individuals with investible financial assets over RMB6 million only increased by 6% in 2018. Moreover with increased complexity in the domestic economic home front and foreign trade frictions, investor's aversion to risk increased significantly. At the same time individual investors understanding of risks and rationality of investments are going through the volatile market and their long-term expectation of investment return is normalizing with the adjusted market conditions

(Foreign Language) Meanwhile, the same China Private Bank report 2019 also estimated that during the next 5 years, the investible financial assets of Chinese individuals will recover to a compound growth rate of 11%, specifically for the high net worth individuals with invested assets transferred continuously from real estate properties and corporate direct investment to financial assets.

The compound growth rate of the investible financial assets will exceed that of the industry to 16%. So we strongly believe that asset management industry will continue to be attractive in China. Combining the asset management with Wealth Management business has better positioned Noah with higher profitability and less vulnerability to economic cycle. With the maturing of all stakeholders in these two industries mingled with the ongoing wealth accumulation brought by stable macroeconomic growth.

The increase investment in financial assets promoted by the aging population as well as the technological innovation accelerated by the Internet. The overall asset allocation demands, including the global asset allocation demand has been and will continue to be of utmost importance to domestic clients.

(Foreign Language) Now let me share with you some updates of our product strategy. In terms of the primary market by the end of the first quarter of 2019 the AUM of Gopher's private equity investments reached RMB101.1 billion up 10% year-on-year. Since the beginning of 2019, the domestic private equity market has remained sluggish in terms of fund raising investment and assets similar to 2018. Our strategy for this year is to still focus on offering first year funds, enhancing bundled fund operations and keep improving direct investment capabilities.

Over the past eight years Gopher has invested directly and indirectly in over 210 funds and over 4,800 enterprises, among which more than 160 enterprises has been successfully listed at home and abroad, and 78 has grown into unicorns valued at over $1 billion. We believe that as the system construction of China's capital market continues to improve, especially with the founding of registration system for public listing on the science and technology innovation board, China's private equity industry will establish a smoother exit mechanism and Noah will be one of the beneficiaries.

(Foreign Language) In the public market, after the spring festival 2019 the Asian market has embraced the bond and investors' risk appetite has gradually picked up. Beginning this year, we have integrated online and offline transaction channels and focused on the mutual fund distribution through our wealth management sales team, together with traditional private fund.

Total transaction value of Noah's public securities products, including mutual fund has rebounded to RMB3.2 billion in the first quarter, up 125% sequentially. The AUM of Gopher's public securities investment has also picked up in the first quarter, reaching RMB6.9 billion and up 11% quarter-over-quarter.

(Foreign Language) In terms of credit funds, we believe that individual clients have a strong demand for fixed income products with local relations with the stock market. On the wealth management front we continue cooperating with leading product providers and credit funds raised in the first quarter were amounted to RMB22.1 billion, up 67% year-on-year and 9% quarter-on-quarter.

On the asset management front the AUM of credit products by the end of the first quarter stood at RMB38.8 billion. While retaining existing products and counterparties, we adopted newer strategies since the second half of 2018 delivering standardized bond funds and public ABS funds, all investing in publicly traded credit securities to increase the breadth of available products. At present a complete credit product line has been established with RMB and U.S. dollar products flexible terms, and stable return.

In 2019, we are focusing on both the scale and the performance of our bond portfolio fund, and this strategy has been attracting increasing attention from both institutional, and individual clients. In terms of US dollars denominated bond and cash management funds, we have developed the full product lines actively managed by Gopher. Specifically our flagship US Dollar Global Bond fund has ranked in the top 5% among its peers with respect to its performance since inception in August 2018. In terms of renminbi products, by the end of the first quarter Gopher's total AUM in renminbi bond funds has exceeded RMB1 billion and its AUM of cash management funds exceeded RMB5 billion.

We believe that in the future standardized bonds will become an important portfolio asset for individual investors and we're fully prepared in this regard.

(Foreign Language) In terms of real estate bonds, by the end of the first quarter of 2019 AUM of Gopher real estate investment reached RMB17.4 billion, up 46% year-over-year. In retrospect Gopher's Real Estate preferred share funds, which were mainly funds raised in the second half of last year has exceeded RMB4 billion in scale and has invested in 15 projects as of the end of the first quarter.

Meanwhile projects invested and managed through our core asset acquisition fund are still operating soundly. The occupancy rate of the office building and commercial properties in Shanghai Gopher Center reached 95% and 100% respectively. Gopher's Shanghai Plaza will also be reported for official completion in June 2019. Against the background of the continuous inflows of foreign capital to acquire China's core assets as well as gradual transition of China's real estate industry from an incremental market to a stock market our extensive experience in real estate investments as well as operation and management are showing their value.

(Foreign Language) From the first quarter of 2019 we officially changed the name of the Strategy Other Investment under Gopher's AUM to Multi-Strategic Investments, which represent our progress and achievements in promoting discretionary multi-asset funds and family office businesses. By the end of the first quarter the AUM of Gopher's Multi-Strategic Investment reached RMB6.9 billion, up 92% year-on-year.

While attracting sustained client investments our full discretionary asset allocation capability has also won recognition by global professional institutions. Gopher Asset was recently granted Best Wealth Manager in China, Discretionary and Segregated Portfolio Management by Asian Private Banker, as well as the Insights & Mandates 2019 Professional Investment awards, China Multi-Asset Strategy 3 years and Global Multi-Strategy 3 years.

(Foreign Language) In reviewing 2018, we believe that we now have an even better understanding of our client demands with a core competency that we have accumulated over the past 15 years. In terms of product strategy, we believe that in the long run it will ensure that bear market such as US market buy and hold the blue-chip stocks is a suitable strategy for asset managers. However, emerging markets feature high volatility of individual stocks, wide fluctuation ranges in stock price and rapid rise and collapse of valuation resulting in significant systematic risk. Therefore, simply holding stocks is not the optimal wealth management strategy for emerging markets.

While the allocation strategy, among multiple asset classes provides more due to sustainability our advantages stand out in the market competition in terms of the investment and allocation capabilities of relevant assets such as stocks, equities, bonds, real estate asset-backed securities cash management products and others.

(Foreign Language) Finally, I would like to talk briefly about the industry and regulation environment. Since 2019 China has continuously opened up the onshore financial market for foreign institutions to acquire financial licenses. With increased competition from strong foreign peers domestic wealth management and asset management firms are facing both opportunities and challenges. And we also believe that this trend will influence China's wealth management and asset management industries in several aspects.

First, capital pools as implicit guarantees will no longer exist. Equity, portfolio and net based products will gradually dominate the market and unlicensed non-compliant institutions will be weeded out.

Second investors will diverge. Without the protection of guaranteed return, investors with low risk tolerance will have to leave the capital market and return to banks, while more sophisticated investors will make long-term investments in asset management products. Third, the business models of wealth management and asset management institutions will transform from competition in licensed resources, rules regulation and regulatory arbitrage to competition in investment, management and marketing capabilities.

With the implementation of the new asset management guidelines that clarify direction of supervision and the continuous opening of financial service market to foreign investors, China's asset management and wealth management industry are going toward healthier and more standardized development that is in line with international growth.

(Foreign Language) Noah in 2019, we define our core businesses as wealth management, asset management, lending service, insurance brokerage, as well as global value added financial services for high net-worth clients. Our objective is to keep sustained growth of clients and AUM scale. In the wealth management segment, we will continue to build our capabilities to serve high net-worth Chinese in a global scope. Improve and optimize our relationship manager team and expand our client base.

In the asset management segment we will focus on improving our capabilities in multi-asset allocation and provide comprehensive asset allocation services for high net-worth and institutional clients. Meanwhile, we're also seeking for external distribution channels for corporate asset management products to drive its multi-dimensional growth. Currently Gopher been included in the want list of several large size securities firms and banks.

In terms of providing more value-added financial services we're mainly targeted in creating more client touch points and cross-selling opportunities. With a sustained dedication in 2019, we are confident in maintaining efficient operations and quality growth as always. Thank you all.

Now I will turn the call over to our CFO, Shang, to review our financial results in the first quarter.

Shang Chuang -- Chief Financial Officer

Thank you. Chairlady. We are pleased to report solid set of financial results for the first quarter of 2019. Both net revenues and non-GAAP attributed income reached historic highs on a quarterly basis. Total net revenues were RMB889.9 million, an increase of 7.1% year-over-year, and non-GAAP attributable ordinary income was RMB304.6 million, up 19.9% year-over-year.

In terms of revenue mix, we achieved one time commissions in amount of RMB324.6 million, up 2.1% from the same quarter last year, and up 33.6% from the last quarter. The strong sequential rebound was mainly contributed by an 11.4% quarter-over-quarter growth of transaction value reaching RMB28 billion, as well as improvement of effective one time commission from 0.97% to 1.16%, mainly contributed by the increased distribution of insurance products.

Recurring service fees in the first quarter of 2019 were RMB420.6 million up 5.7% from the same period last year, accounting for about half of total revenues. The foreign-based income of RMB4.9 million was significantly lower than the first quarter last year because most of the public securities products have not exceeded high watermark of last year, and there were no significant exits by other products. Other service fees were RMB145.4 million, primarily driven by our lending services business as well as the increased demands of value-added services that we provide in the wealth management business.

In the first quarter, total operating income increased 10.2% year-over-year to RMB302.5 million. With operating efficiency enhancement measures, our operating margin increased to 34.2% from 33% a year ago. Total compensation costs were RMB404.3 million, up 12.1% year-over-year, but down 5.6% quarter-over-quarter as we optimize dour employee base. Our selling expenses were RMB90.5 million, down 14.9% year-over-year and down 13.7% quarter-over-quarter.

General and administrative expenses were also well controlled during the quarter. The amount of RMB58.6 million represented a 4.7% increase year-over-year, but 38.3% decrease quarter-over-quarter. Non-GAAP attributable net income for the first quarter was RMB304.6 million, a strong increase of 19.9% year-over-year. This quarter, we adjusted out RMB29.6 million of share-based compensation, RMB8.7 million of gains from unrealized fair changes of equity securities and RMB5.7 million of tax effect of adjustments and adjusted RMB4.9 million of gains on sales of equity securities.

On the balance sheet side, the company increased cash and cash equivalent by RMB165 million this quarter. Operating cash flow generated by core businesses remained strong at RMB152.7 million.

And in summary, we continue to grow our business despite market uncertainty. Looking ahead, we see huge potential in both wealth and asset management industries in China and we are dedicated to creating value for our clients as well as shareholders.

With that, let's open up the call for questions, operator?

Questions and Answers:

Operator

(Operator Instructions) Our first question is from Edward Du with Deutsche Bank. Please go ahead.

Edward Du -- Deutsche Bank -- Analyst

Hi, thanks, management team for taking my question. This is Edward from Deutsche Bank. I have two small questions. First question is about, just so you're active clients increased by around 49% year-on-year but the total transaction value was up only 1% in first quarter, making the average transaction decline by around 32% year-on-year. And my question is about may we know is there any transaction behavior change among your client base or any reason behind this?

And my second question is about the distribution fee and based on my calculation, your distribution fee rate came around 120 bps in first quarter. But we do not see any meaningful change in your product distribution mix in fourth quarter compared to full fourth quarter last year. And I mean we know any pricing structure change, especially in the fixed income product and the secondary market products and that's all my questions? Thank you.

Shang Chuang -- Chief Financial Officer

Yes, sure. Thank you. I will answer both of your questions. So the first question regarding active client transaction value as well as average transaction value per active client, so for the first quarter of 2019, one of our strategy was actually to activate or get more of our client base to transact on product, and we were able to do so by broadening the type of product that we have conversations with clients.

And in the first quarter versus last year FY 2018, we engaged clients with mutual funds, and we feel that by broadening our asset category to include public securities or wider categories of public security we can engage deeper with our clients and that I think works quite well. And so going forward, I think both on the wealth management side and asset management side we see opportunities for us to deepen wallet share by expanding into public securities. Okay. So that's for your first question.

Regarding your second question is, yes, for the first quarter of 2019, effective one time commission rate was up meaningfully to around 1.16%. This is up year-over-year, as well as quarter-over-quarter. I think there are two main reasons. So the amount of insurance distribution for the first quarter were actually quite robust. In addition among the credit products that we distributed for the first quarter 2019, and a portion of it was more longer-term fixed income products, and for longer-term fixed income product, we were able to achieve the revenue upfront.

So those are the two main reasons why we saw effective bundling commission rate is up, but it's still within a very long-term range of 80 to 100 basis point. And so the change is mainly because of product mix rather than any structural trend going forward.

Edward Du -- Deutsche Bank -- Analyst

Thank you.

Operator

The next question is from George Cai with JPMorgan. Please go ahead.

George Cai -- JPMorgan -- Analyst

Hi, thank you for taking my question and congratulations on management for the results. I have two questions. The first one is on the private equity sales. As we can see from the first quarter, I think the private equity product sales has been quite weak as well, compared to the last quarter. And on a year-over-year basis. So can you share with us more color on potentially, when PE sales could rebound. So that's my first question.

My second question is relating to the lending and other business. As we can see the revenue growth has been very robust and we achieved a very sizable profit, but then we -- want to ask on the loan book, what's the current status of the asset quality and any -- what's the provision ratio. And I understand this is more for internal clients lending, but just want to ask you if we have cooperated with other banks on the core lending side. So these are my two questions.

Shang Chuang -- Chief Financial Officer

Sure. For the first question regarding private equity may I allow madam Wang to speak about that and then I'll answer, George on second question regarding our lending business.

Jingbo Wang -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) Chuang?

Shang Chuang -- Chief Financial Officer

Yes, so yes I'll translate Madam Wang to answer for the first question. So regarding the new fund raising for private equity overall in the market is still quite soft. It's mainly regarding the pace of exits by previous funds. As we see in the market general, capital market activity has been sluggish in terms of new IPO, and new exits. But we do see a silver lining as top tier GPs are still able to exit. They are very -- top our portfolio companies.

So our strategy in terms of private equity continues to be focusing on top tier plan, our private fund business, as well as expanding the amount of co-investment and direct investment. And so, we believe our focus will allow us to capture growth opportunity in private equity on the long term. In the short-term challenges and difficulties is mainly regarding investors being reluctant to make a very long-term investment versus hedge funds or public security given there are still a bit of uncertainty in terms of the macro environment. So that's Madam Wang's response to your first question.

Regarding the second question regarding our lending success Madam Wang just want to add some high level comments that the lending business she believes is an important complementary business to our wealth management business. In terms of our high net-worth individuals using financial products will look (ph) to achieve -- to obtain short term loan, which is -- it should be synergistic to both of our core businesses.

Now specifically regarding George's question, on terms of some of the metrics for our loan business, if you people can take a look at our balance sheet as of the end of the first quarter, the loan receivables that's on our book is around RMB507 million, OK. Now I want to take this opportunity perhaps to describe the way our lending business works.

So we would originate loans to our high net worth individuals, and most of the time they would have high quality collateral. And the average duration is around 9 to 12 months. After we originate these loans we will sell or securitize these loan receivable, so then they are sold to investors.

We continue to serve as a servicing agent in terms of the collection and the passing of interest and principal, but we're no longer liable for the financial risk. So it's in general it's a asset light business, if you may. In terms of the loans that we are servicing it's roughly about RMB10 billion. So for the loans on our book actually we have 1% NPL provision. But historically the last 2, 3 years, we have not seen any meaningful default. The main reason is because of a high quality of the Board, as well as the soundness of the collateral that we have, when we make that loan -- when we make those loans. Thank you.

Jingbo Wang -- Co-founder, Chairman and Chief Executive Officer

Operator?

Operator

Yes, sorry. The next question is from Stephanie Poon with Citi. Please go ahead.

Stephanie Poon -- Citi -- Analyst

Hi, management team. Thanks for taking my questions. So the first question is regarding your core domain (ph) of your audit strategy. So we understand that like traditionally the alternative products has been your core strengths. Like for example, on the private equity or some loans on the credit side. So as you now expanding into this standardized credit products for these mutual funds it seems to be a more competitive area that we see a lots of other traditional banks are focusing also over in these products.

So can you share with us more about that what you see as your competitive edge here on these standardized products and also as you like expand into this product categories, does it also means that you you're penetrating into maybe a lower-tier client base.

And the second part -- second question is regarding your asset management distribution channels. You mentioned earlier that you are expanding into some lower distribution channels. Can you share with us like any specific channels that you have currently and what is the percentage exposure there? And also in terms of the position of this asset management business going forward.

I guess in the past, we used to understand as more as supplementary for your whole wealth management products business to serve your existing high net-work individual clients. But going forward, should we see it as maybe more staying along although business segments that you also expanding into some like external time-based? So that's my -- all of my questions. Thank you.

Shang Chuang -- Chief Financial Officer

Thank you. Stephanie. Just for the benefit of my colleagues who are also on the phone, I'll just -- perhaps just quickly summarize the three questions you raised . One is regarding our public securities products, specifically mutual fund, how that will impact our business. Second is regarding Gopher Asset financing, asset management's expansion into non-Noah distribution channels. And third is asset position going forward.

I will answer these three questions and see if Madam Wang and Mr. Zhao have anything to add.

So regarding your first question, as you know, and many of our shareholders are aware, Noah has been and will continue to be a firm believer of asset allocation. Over the last 10 years, 12 years we have consistently expanded in terms of the product category and investment strategies that we are able to offer and manage for our clients because we believe a true diversified asset allocation is the best way for high net-worth individual to ride through capital market volatility. And we believe mutual fund should be an important aspect of their toolbox, or an important tool in the toolbox.

And if you look at leading private bank, for example, UBS, their high net-worth individuals have 20% to 40% allocation in mutual fund. So specifically on this particular strategy, is actually in line with our long-term strategy of deepening client wallet share rather than us expanding into mass retail. So I just want to clarify in terms of our approach toward the mutual funds, how do we get more of our existing clients' wallet share. How do we have -- or engage more client to transact with us. So that's the reply for number one.

And trying number 2, as Ms. Wang mentioned for Gopher, I think we have always been seeking ways to broaden the capital sources for Gopher. We have had some success with large insurance companies, but we also see opportunities as Gopher established more track record as well as expertise across investment strategy. And most recently, we have very good progress in terms of mid to large size securities firms in terms of become -- getting on their preferred list in terms of distributing Gopher's public securities product, i.e. kind of hedge fund or others and quantify it. And we see as the capital market continue to develop in China we want Gopher to be able to grow its AUN from all these different sources.

I guess it's tied to your third question, in terms of the long-term positioning of Gopher. I think a very good example would be globally, we see a lot of private bank when in these early stages will incubate an asset manager but as the asset management grows and expand its business it's become quite fairly independent, i.e., their capital sources comes from institutions, come from other distributors.

A reference is I believe that and when I spoke with my peers at UBS Asset Management, about 20% to 30% of their capital comes from UBS, private bank, i.e., more than half 70% comes from non-UBS private banking sources. And I think that is a good role model or an example of what Gopher can achieve, as Madam Wang mentioned in her prepared remarks and we continue to believe. So asset management in China is still very early days. If we use a baseball analogy probably only in the second, third innings and as the future growth potential. It's quite huge for Gopher.

And I believe Madam Wang (Technical Difficulty) I believe Madam Wang has things to add as well. (Foreign Language).

Jingbo Wang -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language)

Shang Chuang -- Chief Financial Officer

Yeah. So let me translate Madam Wang's commentary on the question. So for Gopher, since establishment in 2010, over the last, nearly decade, I think we have accumulated expertise in the various investment strategies that we operate in. And most unfortunately we have now seen the benefits of being an actor (ph) in terms of asset allocation and diversified solution provider.

What this means to our investors is delivering low volatility, as wage (ph) and investments strategies have low correlation to each other. Now, we will continue to expand Gopher based on (inaudible) co-investment and direct investment with the goal and intention delivering absolute return to investors, and we believe we're able to do so by executing on a multi-strategy efforts.

Now based on various data that we have accumulated over the years, as well as recent conversation and surveys with our clients we believe that we are very well positioned to be the leaving -- leading brand for multi-strategy in China, and in terms on the asset manager for alternatives. So now adding some comments on our expansion into public security, again I want to emphasize this is part of our asset allocation approach. It's not aiming to expand into new a client segmentation, but rather, how do we use new tools to cross-sell to existing high net worth clients.

Now for the first quarter, I think we had some efforts in terms of mutual fund fundraising, and historically we have done a mutual fund on the asset management basis. So we are actually quite familiar with this asset category. And for some of the funds that we were focused on fund raising in the first quarter, the fund raising side that we achieved is actually similar to some of the mid to large banks and the bank. And this just shows that the potential of our clients in terms of this asset category, the average transaction per client for the mutual fund for our client because much higher than bank.

Now we are confident in terms of getting non-Noah channels or distributor to specifically (ph) Gopher Asset, as Shang mentioned, there are a lot of asset management firms globally that we have originated from wealth management roots, but has grown to be very sizable and their reliance on their existing private banking partner with own is now only 10% to 20%. So in other words as Gopher develops the potential from non-Noah channel should be even larger than the amount coming from Noah currently today.

Jingbo Wang -- Co-founder, Chairman and Chief Executive Officer

Operator?

Operator

Yes. Our next question is from Yuan Xue with CICC. Please go ahead.

Yuan Xue -- CICC -- Analyst

(Foreign Language)

Shang Chuang -- Chief Financial Officer

Yes, for the benefit of the audience. I will translate the question from the research analyst from CICC. So I know from the quarterly disclosure the company has for the first time disclosed segmentation by geographic location. And we see for the first quarter 2019 revenue coming from others -- or other region has made good progress and if you can give us more color on that.

And so I'll comment on this question and see if my colleagues have anything to add. But over the last few years and we continue to express our view to the capital market is that we want to build a global business. And since the establishment of the Hong Kong business in 2012 we have continued to make good progress. As of the first quarter of 2019 our overseas markets have contributed roughly about 25% of total revenue and over the next 3 year to 5 year, we continue, we want to continue to grow that percentage.

Now as you know, we set up our, -- this is in the US, roughly about 2.5 years to go both in Silicon Valley and New York. Both of these offices and the team are focused in terms of product sourcing and developing products. And so we're now able to offer VC fund investment opportunities, co-investment and direct investment opportunity as well as U.S. insurance products to our clients. And so it's an example of how we replicate our success in Hong Kong to other large capital market or large markets elsewhere in the world. We believe our clients are becoming more mobile and global.

So and definitely in terms of building a global presence will benefit us in the long term.

Operator

Our next question is from George Cai with JPMorgan. Please go ahead.

George Cai -- JPMorgan -- Analyst

Yeah. Hi, thank you, for -- I have a follow-up question. I think on the net profit, there is quite a large gap between the GAAP net profit and non-GAAP profit. A large chunk of it, I think it's related to the gain -- unrealized gains from the fair value changes of equity securities. So could you add more color on this. And going forward, do you expect the volatilities could be smaller? Thank you.

Shang Chuang -- Chief Financial Officer

Yeah. Thank you George, for the question. If you note on page 17 of our 6-K or quarterly disclosure, we break out the details of our GAAP net income and non-GAAP net income. The largest adjustments actually share-based comp, which is quite in line with how other, let's say, company define non-GAAP net income, and part of it, the other part of the adjustment comes from fair value changes of equity securities are unrealized. And you can define this or interpret this as basically mark to market of equity securities that we hold, and the market has been a bit volatile.

And so we adjust out those noises and then we add back in a realized gain and there is a detailed breakout. So I won't read the numbers, one by one. Yeah.

Jingbo Wang -- Co-founder, Chairman and Chief Executive Officer

Operator?

Operator

This concludes the question-and-answer session, and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Duration: 73 minutes

Call participants:

Shang Chuang -- Chief Financial Officer

Yi Zhao -- Group President

Jingbo Wang -- Co-founder, Chairman and Chief Executive Officer

Edward Du -- Deutsche Bank -- Analyst

George Cai -- JPMorgan -- Analyst

Stephanie Poon -- Citi -- Analyst

Yuan Xue -- CICC -- Analyst

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