Noah confident of profit in consolidating China wealth market

SHANGHAI • China’s first private asset manager for the ultra rich is confident it’ll meet its 2018 profit forecast, despite disappointing first-quarter results that triggered a slide in the company’s US-listed shares.

Noah Holdings Ltd sees full-year earnings increasing between 16.7% and 22.6% amid a shakeout in its rivals due to the government’s crackdown on shadow banking, said president Kenny Lam.

The company has lost 26% of its value on the Nasdaq since late-May, when it said non-generally accepted accounting principles profit grew a weaker than expected 8.1% in the first quarter (1Q).

“We are still going to maintain that,” Lam said in an interview in Shanghai yesterday, referring to the full-year outlook.

He said profit for the whole of 2018 will gain from the improved business environment and inclusion of “performance fees” that are accounted separately from regular management fees and not reflected in the 1Q results.

Asset managers across China are benefitting from a boom that saw personal wealth more than double to US$21 trillion (RM85.14 trillion) over the five years through 2017.

The country had more than 1.3 million millionaires last year, according to a report from the Boston Consulting Group.

Noah is tapping into this surge by ramping up across the region, Lam said. It plans to boost its 60-strong research team by 10% to 15% this year, widening coverage of sectors such as private equity, the secondary market, credit and macro. Its salesforce will expand by 5% to 10%.

The Shanghai-based firm will also open an office in Singapore, after establishing outlets in Hong Kong, Canada, Australia and the US.

“Singapore is logical,” Lam said. “There is a big South-East Asia Chinese market looking to invest in China, but they haven’t really found a partner yet.”

Despite this strong demand, Lam predicts 85% of rivals will be “consolidated or closed down” as the

government tightens oversight. These include existing players in the China private wealth management industry as well as peer-to-peer lenders who have remodelled themselves into online asset managers.

Noah caters to clients with investable wealth of more than US$50 million; it advises on US$85 billion of client assets and manages another US$25 billion itself.

Financial regulators in April reiterated strict new rules on China’s US$16 trillion asset management industry, though they gave firms more time to fully comply. The moves include removal of implicit guarantees, imposition of caps on leverage, orders to reduce duration mismatches, and steps to improve know-your-customer norms.

The crackdown will help Noah, according to Lam. He said his firm has stringent risk-management practices and stays away from questionable behaviour such as luring investors by offering guaranteed returns.

“We see a lot of competition that’s actually doing a lot of crazy things, in many cases I would say Ponzi schemes,” Lam said. Following the government’s action, “competition has become fair”. — Bloomberg