This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Good day and welcome to the NOAA Holdings Third Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Grant Pan, Chief Financial Officer, please go ahead.
Grant Pan
Thank you, operator. And for today's conference, I'll first introduce the quarterly financial results, and we'll hand back to Chairlady Wang, followed by a Q&A session. Good morning, everybody. Dear investors and analysts, I'm very happy to share with you the solid financial results for the third quarter of 2021, with continued growth achieved across revenues and client activities. we're excited to see continued growth in our black card and diamond card clients, demonstrating successful implementation and execution of the upgraded client servicing strategy, as well as record high recurring service fees, thanks to the improved asset mix we allocate for our clients. We're also very happy to report that we're ahead of the schedule to deliver the full-year non-GAAP net income guidance with RMB $1.1 billion, recorded in the first three quarters of 2021. Net revenues. In the third quarter was RMB 908.9 million, up 1.1% quarter-over-quarter and 5.8% year-over-year. One-time commissions were RMB 215.1 million, down 12.9% amid market turbulence, and increased prudence over policy outlook from the last quarter, but still up 10.4% year-over-year. Recurring service fees were RMB 566.9 million, a record high since listing, up 13.7% quarter-over-quarter and 1.2% year-over-year. The growth in recurring service fees was attributed to our growing asset under advisory, or AUA, performance-based income, was RMB 82.1 million, down 32.6% quarter over quarter, and up 16.5% year over year, mainly contributed by profitable exits from our overseas PE products. Income from operations were RMB 228.9 million, down 31.8% quarter over quarter, and 34.1% year over year, with an operating margin of 25.2%, The decline in operating margin was mainly due to increased efforts in talent acquisitions and retention, continued investment in IT infrastructure, increased marketing activities, including depreciation and amortization expenses related to our newly acquired headquarters, as well as the pre-planned execution of our yearly strategic investment budget. Non-GAAP net income for the quarter was RMB $284.2 million, and RMB 1.08 billion for the first three quarters, giving us confidence to meet RMB 1.2 to 1.3 billion full-year guidance. It's also very encouraging for us to see sustained momentum in client activities and growth in black card and diamond card clients. Despite the challenging market conditions, the number of active clients that transacted with us during this quarter was over 21,000, up 4.8% quarter-over-quarter and 3.7% year-over-year. The number of black card and diamond card clients also increased by 16% since the end of 2020. This growth also makes us the fastest in the industry in the acquisition of core clients compared to an industry average of close to 10%. The strong growth in black card and diamond card client group is a reflection of the successful execution of the Diamond Black program supported by our strategic investment budget, the implementation of NOAA Triangle Service Model, as well as the upgraded client acquisition strategy. Enlarging this client group, which contributed to around 80% of our AUA, will continue to be one of the key strategic focuses in the long run. Transaction values during the quarter was RMB 24.1 billion, down 3.7% quarter over quarter and 16.4% year over year, mainly due to the overall performance in the secondary markets and the seasonality nature of the primary market fundraising activities. Notably, the amount of private secondary products we placed for our clients was RMB 10.6 billion, up 36.8% quarter over quarter. and 22.6% year-over-year, as our clients seek long-duration products when facing market uncertainties, which demonstrates our clients' sophistication as a result of NOAA's continued investor education efforts. Our historical data also shows that our onshore private secondary market secondary product clients who subscribed exited for over three years tend to achieve higher returns in the double-digit range than those who exited earlier. When looking at year-to-date figure, transaction value during the first three quarters of 2021 was RMB 76.2 million, up 3.7% year-over-year. By segment, net revenues from the wealth management business was RMB 653.6 million, up 4.5% quarter-over-quarter and 4.1% year-over-year. which contributed to 72% of total net revenues. Now, revenues from the asset management business amounted to RMB 241.4 million, down 5.8% quarter-over, but up 8.5% year-over-year. Total AUM increased marginally from the previous quarter to RMB 156.1 billion as the growth on PUM was partially offset by redemptions of real estate-related investments After the continuous efforts in exiting real estate-related assets, we had exited a majority of our onshore real estate assets with only office properties located in Shanghai actively managed by our own operations team, and the U.S. rental apartment assets managed by our investment team based in New York. Net revenues derived from overseas business was RMB $250.4 million, up 10% quarter-over-quarter and 58.5% year-over-year, mainly contributed by carrying income realized by successful exits in the U.S. dollar investment products we place for our clients. We'll continue to strengthen our international platform to meet with the growing overseas asset allocation demands from our clients. On the balance sheet side, we're pleased to announce that our total assets have first-time exceeded RMB $10 billion mark for the first time marking another remarkable milestone in NOAA's 16-year history. We have a healthy cash balance of RMB $2.8 billion by the end of this quarter, as well as an improved debt-to-asset ratio of 22%, with no interest-bearing debt. Lastly, I would like to highlight our recent developments in ESG initiatives. Gophers investment professionals are working diligently to develop ESG-oriented fund products and we hope to launch these products by as early as next year. In conclusion, we have concluded the quarter with solid financial operating results despite the challenging capital market conditions, demonstrating the resilience in our business model. And we're determined to invest in key areas where we can strengthen our competitiveness through our strategic investment budget, both in the fourth quarter and going forward. And now let me pass the speech to Chair Lagan-Norumar.
Chairlady Wang
Thank you, Panqing. First, I would like to talk about my views on Hongguan, and then I would like to report on the overall performance of Luoya in the third quarter of 2021, the development situation of several branches, and the change of Luoya's transformation from customer to center. Luoya's new positioning and future development strategy in the changing market environment. Okay, now I will start. In 2021, we felt more deeply that China's economy has turned from a high-speed growth stage to a high-quality development stage. China's economy has entered a new era of certainty. With the combination of constraints and incentives, China values the development of quantity, but more importantly, the problem of quality. In the rapid improvement of quality, we will achieve effective growth of quantity. China will achieve long-term economic development and transform into a high-income country. We will walk a path of strong and sustainable growth. We are still full of confidence in China's wealth management and asset management industry. Continuous economic growth is the core reason for the growth of the two industries. Although China's GDP growth is heading towards a more sustainable level of adjustment, it should be able to maintain a 4.5% annual growth before 2030, reaching a size of $29 trillion. China is heading towards a goal of a smooth sales of $20,000 per capita in 2030, which should be able to cross the threshold of high income. Although the growth of wealth and income is not linear, we believe that when China becomes a high-income country in 2022, the proportion of wealth and domestic production will enter a turning point. After that, the growth rate of Chinese family wealth will exceed that of domestic production. We believe that China's financial industry will go through a stage of rapid growth and rapid change. The wealth management and asset management industry will be able to fully utilize the opportunity. But like other As with all Chinese industries, the development path of wealth management and management will be different from that of the West, especially the United States. For example, China is very concerned about encouraging entrepreneurship and increasing the income of residents by building a new economic growth model. But this model is highly dependent on modern support, so it has created a lot of bottom-up assets as fixed income products. But these assets are not suitable for the wealth management industry. After two years of firm transformation, Loya has completed the non-standard asset clearing in the first half of 2021, and has established a foundation for our future health development. Today, we are able to stand on the turning point of industry history in a relatively calm way, and are deeply aware of the future development, the growth of quality, and the need to focus more on the wealth management and asset management industry. Loya has also moved from a company that drives product from the beginning of a business to a customer-centered company, Thank you, Grant. I will first talk about my view on the Microsoft situation and then report on the overall performance in the first week of 2021.
Loya
the developments of major business segments, the progress of new client-centric comprehensive reform, as well as NOAA's new positioning and future development strategy under the ever-changing market environment. We will then open the floor for questions. In 2021, we gained a more immersive experience of China's economy changing from high-speed growth to high-quality development. China's economy has entered an era of new certainty, And the only thing that can be expected is certainty. Incentive and restraint mechanisms go hand in hand. China not only attaches importance to the quantity, but also pays more attention to the quality of development. So as to realize the effective quantitative growth with substantial improvement of quality, the nation will achieve long-term economic development, transform into a high-income country, and is on track to achieve robust and sustainable growth. Driven by the sustained economic growth, we're confident about the prospects of China's wealth management and asset management industry. Although the country's GDP growth is adjusting to a more sustainable level, it should still maintain an average annual growth of 4.5% to reach US$29 trillion before 2030. Currently, China is moving smoothly towards the per capita income target of US$20,000 in 2030 and should be able to cross the high income threshold. Although wealth growth is not linearly related to income growth, we believe that when China becomes a high-income country in 2022, its wealth-to-GDP ratio will enter an inflection point. And thereafter, the compound growth rate of China's household wealth will exceed that of GDP. We think that China's financial industry is going to experience a stage of rapid growth and swift change. The wealth management and asset management industry will be able to take full advantage of these opportunities. Like all other industries with Chinese characteristics, the development path of wealth management and asset management will be different from that of the West, especially the United States. For example, China's infrastructure-led economic growth model attached a great importance to encouraging entrepreneurship and increasing residents' income. This model was highly dependent on credit support, so it created a large number of underlying assets for fixed-income products. However, not all of these assets are suitable for the wealth management industry. After two years of unswerving efforts in transformation, NOAA took the lead in successfully clearing non-standardized assets in the first half of 2021 laying a solid foundation for our healthy development in the future. Today, we stand calmly at a historical turning point of the industry and deeply realize that to achieve future development and quality guaranteed growth, we need to stay focused on the wealth and asset management industry more. NOAA has also made a comprehensive transformation from a product-driven firm in the early establishment to a client-centric and survival-as-the-bottom-line company In the first three quarters of this year, with the adoption of the NOAA Triangle Service Model and the systematic business development from the headquarter to the frontline cities, NOAA's Diamond and Black Car clients continued to maintain a satisfactory growth, up 16% over the end of 2020, exceeding 8,000 people.
Chairlady Wang
In the third quarter of 2021, NOAA achieved a sales income of 9.1 billion yuan, a growth of 5.8% and a management fee of 5.7 billion yuan. With the growth of AOM, it has created a new record. The non-GAAP profit of the shareholder is 2.8 billion yuan. With the scheduled release of the strategic investment budget of the group, it has decreased by 4.2 billion yuan. As of September 30, it has accumulated a profit of 10.8 billion yuan. It has completed 90.3% of the profit and loss. In terms of core business data, the total volume of the three-weeks is 240.7 billion yuan. The total volume of the previous three-weeks continued to grow, and it has accumulated 760 billion yuan. I am very happy to report that Luo Ya's temporary customers increased by 14.6% in the first three seasons of 2021. Black card customers increased by 22.3% in the first three seasons of 2021. Iron Triangle's service model is recognized by Luo Ya's core customer group. Our customer activity is steadily rising at the same time. In the third season of 2021, Luo Ya's high-quality customer group, active customer number, including public funds, increased by 3.7% in the same ratio, and increased by 4.8% in the same ratio. In the traditional context, Our KYC, KYP, and KYA system labels are constantly improving. to form the management signboard of the Group Iron Triangle Team. The 3K application scene is connected. The sales map combines all kinds of labels and applies them to the business of Li Caishi. The customer image is more accurate. The match between the customer and the product gradually realizes the refined management. The upgraded CRM system also provides Li Caishi with mobile management of the customer's whole life cycle. Not only that, we also realized the digitalization of the whole process at the product selection stage, creating a comprehensive, diversified, high-quality price. The product process is more standardized and integrated. The wealth management market is constantly growing. Customers are more rational. ERA has introduced organizational change, breaking the financial incentive mechanism of the past insurance sales. The customer center needs to use the best people to serve high-end customers. The density of first-tier customer managers continues to improve. At the same time, we reform the business flow, let high-end customers enjoy service like institutions. The customer center uses a small team to
Loya
In the third quarter of 2021, NOAA achieved net revenues of RMB 910 million, an increase of 5.8% a year, of which the recurring service fees reached RMB 570 million due to the snowball effect of the scale of our assets on the advisory, setting a record high. As we released the group's strategic investment budget as we planned, Non-GAAP net income attributable to shareholders was RMB 280 million, a year-on-year decrease of 4.2%. As of September 30th, the accumulated non-GAAP net income reached RMB 1.1 billion, completing 90.3% of the guidance ahead of schedule. In terms of core business data, transaction value in the third quarter was RMB 24.1 billion. The total transaction value in the first three quarters continued to grow. reaching RMB 76.1 billion, a year-on-year increase of 3.7%. Among them, the transaction value of private secondary funds was RMB 10.6 billion, an increase of 22.7% year-on-year and 36.8% quarter-on-quarter, while the transaction value of mutual funds was RMB 8.94 billion, which decreased both year-on-year and quarter-on-quarter due to the overall market performance. With the transformation, We reiterated our focus on serving high net worth and ultra high net worth clients as our core client base. I'm very glad to report that in the first three quarters this year, our diamond card clients increased 14.6% and our black card clients grew 22.3%. The NOVA Triangle service model has been recognized by our core client base. At the same time, our clients' activities improved steadily. In the third quarter of 2021, the total number of active clients, including mutual fund-only clients, increased by 3.7% a year-on-year and 4.8% quarter-on-quarter. The number of conventional active clients increased by 25.5% a year-on-year. Digital transformation has helped narrow reform from product-driven to client-centric, and we have increased investment in technology in the past two years. The group's technology center has had 13% of new hires this year reshaping the whole business flow system of client development, client operation, products and solutions, as well as operation management. With the continuous improvement of our KYC, KYP, KYA system labels, the group's management dashboard of NOAA Triangle teams has been formed, connecting the 3K application scenarios. The marketing map integrates all kinds of labels into the business development process of relationship managers, making the client profiles more accurate and the management of client and product matching increasingly refined. The upgraded CRM system also provides relationship managers with mobile management options throughout the lifecycle of clients. Moreover, at the product screening end, we have also realized the digitalization of the whole process, creating a full-pedigree, diversified, and high-quality product shelf. as well as making the product launching process more standardized and systematic. The wealth management market is constantly maturing, and clients are more rational. NOAA has introduced the organizational reform, breaking the past incentive mechanism for relationship managers that was similar to insurance sales. The client-centric philosophy requires us to serve high-net-worth clients with top-notch personnel, and the talent density of our frontline relationship managers continues to increase. We have also reformed our business process so that high net worth clients can enjoy the same services available to institutional investors. By taking clients as the center and meeting the multi-dimensional needs of clients with small service teams, the satisfaction rate of core clients has improved greatly.
Chairlady Wang
It is possible to see that the increase in the standardization of assets and the addition of assets has achieved a steady recovery. The structure of asset management continues to be optimized, and the effect of the snowball will be more obvious in the next few years. The public market scale of non-asset management is stable at RMB1.1 billion, which is equal to the previous quarter. The management scale of private equity is RMB1304 billion, which is 2% higher than the previous quarter. Gefei uses customers as the center of change, positioning them to improve their initiative management capabilities, insisting on research capabilities to drive investment performance, and becoming the preferred brand for customer financial support. It is worth mentioning that Gefei's target strategy products, which are classified as public market products, have effectively reduced the flow of the combination by the end of September 30th, and obtained relatively stable super-earnings. The active, stable, and balanced three products have achieved the target investment performance. At the end of the private equity, Gefei's S-Fund, which won the award, As of September 30, 2021,
Loya
Thanks to the zero distribution of non-standardized assets and the redemption of all of these assets, GoPath AOM reached the remaining $156.1 billion. It can be seen that incremental public securities have supplemented the gap, thus achieving stability and recovery of the total AOM. The continued optimization of asset management structure and the snowball effect will be more obvious in the next few years. The public securities assets actively managed by Gopher kept stable in the third quarter at 11 billion RMB, same as the end of the last quarter. The AOM of private equity was RMB 130.4 billion, an increase of 2% over the end of the previous quarter. Gopher's client-centric transformation is positioned to improve its active management capacity, adhere to the research-driven investment performance, and further become the preferred wealth management brand with stabilizer functions for clients. It is worth mentioning that as of September 30th, the investment team of Gopher's target strategy product classified as public securities has effectively reduced portfolio volatility and obtained relatively stable excessive returns. but the positive, stable and balanced funds each achieved their target investment performance. On private equity side, Gopher's award-winning S-Fund Series 5 has basically completed its investment process, and Series 6 has been officially launched in November. Gopher has built a blueprint for digital transformation. In 2021 and 2022, Gopher mainly focuses on the objectives of digitalizing investment and research, data governance and structuralization, as well as continued client experience improvement. In the third quarter, Gopher launched the Fund Investment and Research Management System, which provides the multi-strategy investment team with a standardized evaluation and fund pool entry process, combining quantitative analysis and qualitative evaluation.
Chairlady Wang
From the first day of the startup, there was no capital pool, no steel team, no time-lapse matching and barge matching, and no cross-border operation of funds. Our companies in different countries and regions have insisted on a harmonious management. After 17 years of development, we are more and more clear about our positioning, and we are more firm in the determination to grow in the wealth management and asset management industry. Luoya's core values insist on the customer as the center, to live as the bottom line, to connect global asset management companies, to continue to improve, to become friends of time. In 2017, President Xi talked at the Central Economic Work Conference that China's high-quality development is to be able to well meet the beautiful needs of the people's growing daily life, to reflect the development of new development ideas, to be the first motivation for innovation, to coordinate, to become the key characteristics, to become the general form of green, to be open, to become the road of freedom, to share, to become the development of the fundamental purpose. We believe that Since 2014, Loya has issued continuous development reports every year. At this month's Jinbo Conference, the Industrial and Information Technology Department and the United Nations Global Contract Organization co-organized the Enterprise Social Responsibility International Forum. The Ministry of Industry, Trade and Industry is awarded the highest AAA-level rating for Loya's excellent enterprise social responsibility report. It is the only private financial enterprise with a high rating. This year, we also won the Chinese Stricter regulation is a global phenomenon. Compliance is the lifeline and the barrier of competition. No one respects common senses and reveres the market. From the first day of our establishment,
Loya
There has been no capital pool, no implicit guarantee, no duration mismatch, no leverage allocation, and no cross-border capital operations. NOAA operates fully compliant in the countries and regions where we hold licenses. After 17 years of development, we are increasingly clear about our market positioning and determined to be deeply rooted in the wealth management and asset management industry. NOAA's core values are client-centric and survival as the bottom line. We connect with the world's leading asset management companies, make continuous improvements, and make friends with time. In 2017, President Xi Jinping said at the Central Economic World Conference, China's high-quality development is that to meet people's growing needs for a better life, to reflect new development concepts with innovation as the foremost driving force. Coordination as an endogenous feature, green as a universal philosophy, openness as a requisite way, and sharing as the fundamental goal of development. We couldn't agree more. Now I have been releasing a corporate sustainability report every year since 2014. During the China International Import Expo this month, at the International Forum on the Corporate Social Responsibility co-sponsored by the Ministry of Industry and Information Technology and the United Nations Global Compact, The Ministry of Industry and Information Technology awarded NOAA the highest AAA rating for excellent corporate social responsibility reporting, making NOAA the only private financial enterprise awarded with this high rating. In 2021, we also won the ESG Responsible Enterprise Award of the Year granted by the Summit Forum on CSI in China. NOAA will adhere to high-quality development and keep continuing to the sustainable development sorry, keep contributing to the sustainable development and green GDP. Now, let's open the floor for questions. Thank you.
Operator
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. And to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Ethan Wong with CLSA. Please go ahead.
Ethan Wong
大家好,我是Ethan. This is the first question. uh professional management The first one is on the investment advisory services. So China has been giving out investment advisories licenses to financial institutions, and we've seen brokers have ramped up their services on this front. Just wondering, is that going to change the competition landscape, and how does NOAA perceive this new trend of investment advisory services? And a second question is on the recent criticism from regulators on cross-border brokers, and we've seen a ramp of interest under these circumstances on the professional managed overseas products from Chinese investors. So could management help us, give us more color on NOAA's product offerings on this front? Thank you.
Chairlady Wang
Okay, thank you for your question. First of all, we also think that the headquarter is still a very large market. We are also actively seeking for this application. At present, it seems that the third-party independent retail institutions may be able to get it in the next batch. But for our business, I don't think it will have a big impact. Because this is also our view of this market. I think in China's high-end, especially in the high-end customer market, there are actually three types of people. It may be that there is still a greater risk of compliance. And the real high-end customers, in terms of full-time commissioning, it is also a big demand for them. I think Gefei's target strategy is actually this. This will also become one of our mainstream products. This is our strategy. In addition, in terms of cross-border brokerage, I think the supervision is mainly not recognized. It may still belong to the domestic customers. This way of moving ants, Many overseas Chinese are investing in China, which is our main focus. So I think we have an advantage in this area. As for the overseas standardized assets you mentioned, we have been promoting this area for a long time. I think the market is quite big, especially this year.
Grant Pan
Thanks, Ethan. I'll translate Chair Lady Wang's answer and also have a little bit of my own input. In terms of the IC license, we'll agree with you that it's probably going to be a pretty big market, and we're in the process of applying since last year. But I think our view is that for the independent wealth managers, probably we'll be in the next batch of the application after April. The water has been tested for a few months. And we do believe that it probably doesn't have as much impact on us as one would imagine. As you can see, we actually break down the clients into three groups based on their investment preference. Obviously, the first type is the product-driven. They basically just go after the right products they like. And the second one is that they just pretty much give you discretion in terms of investing. We believe that the IC license is probably targeting the semi-discretionary clients. They want to have a little bit of participation in the investment process and at the same time actually receiving professional advice from the ICs. You know, NOAA is pretty good on the first two types, product-driven and discretionary management. Not saying that we're giving up on the last type, but which don't think that, honestly, the industry is ready to provide professional advice plus the actual portfolio. As you know, that the regulators actually doesn't allow virtual portfolio. So it has to be an actual portfolio of investments. So we believe it's probably still in the process of water testing. but obviously we'll be very active in pursuing this license. I think one of the things that I would like to mention that Gopher's target return products actually is, to some extent, actually help the client with their purpose of having a diversified portfolio, similar to what the IEC is doing. So on the second question, We understand from a regular standpoint, the pressure actually comes from whether or not they're helping certain clients to move assets overseas in little pieces. We think it's a probably dangerous move. That's why we understand why the regulators are getting nervous on that. In terms of NOAA, when we had our first branch, an overseas branch, in Hong Kong in 2012, you know, we have been pretty much serving clients who already have assets overseas. And, you know, lots of the investment directions is actually they try to invest back into China's development opportunities. So we believe actually we hold more advantage on that type of product. So we don't think it's going to have too much impact on us. You know, our ESOP plans and ESOP business is pretty much helping clients you know, clients, you know, basically pure trust services. We actually don't interfere with any of their fund transfers. Did I answer your question, Ethan? Okay. Thanks.
Operator
Thank you. The next question will come from Nick Su with Credit Suisse. Please go ahead.
Nick Su
Thank you, Benjamin, for taking this question. My question is, NOAA is selling other people's mutual funds in a big way, in a very good way. In the meantime, your app management business in the private market is also booming. And your targeted portfolio, in my view, is very much the DPM business. My question to Mr. Pan is, since you are doing basically everything that a large app manager is doing, have you ever thought of converting NOAA into a full-scale ad management company. In China context, a mutual fund company with a private market capability. 我的问题就是,班总, 诺亚的公募基金销售, 资募基金管理, 已经做得非常成功, 然后包括您提的目标策略, 我的理解呢, 也比较像海外私营银行的GPS。 既然诺亚已经在做, Thank you. This is a good question. In fact, I also particularly hope to be able to do this, but I need you to communicate with the supervision.
Chairlady Wang
Now, China's supervision is still challenging for companies like Loya to apply for public registration in overseas listed companies. Otherwise, they have to apply in their own name. It's equivalent to, for example, me and Yingzhe have to apply in our own name. This may not be completely the same as overseas shareholder interests. The third one is that if we apply for public money, all of our private funds must be given up and all of them must be returned to the public fund system. If you look at the public fund system in China, all of the private funds that used to be used for public funds have now been transferred to public funds. For us, we think this is still a challenge. One is to work with ROEA. In fact, ROEA has three businesses, financial management, asset management, and international management. Thank you, Nick. Yeah, it's a great question. We actually think that probably you could help us communicate with...
Grant Pan
the regulators that the application process for mutual fund license in China is actually very stringent. So you either hold a sort of, you know, main license domestically already, or you have to basically apply in the name or in the identity as an individual. So, for example, maybe Chair Lady Wan and Mr. Yin, they could apply for that. as individuals, but obviously that's not going to serve the group well from the holding company standpoint. So, you know, that's one of the strategic points that we have talked about in the past, but we didn't believe that, you know, with this effort and everything that comes with, you know, you probably are required to separate or spin off any privately raised fund business if you do hold a mutual fund license. And, you know, considering what we have right now, you know, as wealth management, asset management, and also, you know, NOAA global intelligence, you know, by giving all these up, having only mutual fund licenses, I think that's going to be a pretty major transformation, especially in the climate segmentation from high network to, you know, more or less to the retail side. So, you know, it's obviously, you know, one of the main licenses that... probably will help boost business, but at the same time, I think that it changes, you know, our entity and also the segmentation of clients. So hopefully that answers the question.
Operator
The next question will come from Yiwan Li with Gojian Securities. Please go ahead.
Yiwan Li
Hello, Mr. Wang. Hello, Mr. Pan. I'm Li Jixuan from the State Bureau. My question is about the third quarter. We have seen an increase in the cost of management. We think this will affect the management level for our company for the long term. My question is that we have a sharp increase in the in the management cost and such as the competition, selling advances, and we would like to ask how the management will interpret this and what's the future plan for the incoming operation of the Sorry. Yeah. Sorry.
Grant Pan
We still want to retain our excellent talents from the point of view of GEO, including our new technical management method in the front line. In fact, it adjusts the level of our front-line financiers. So this part is also reflected. In this part, we expect that except for these two factors, it will basically go down a little bit in the fourth quarter or the whole year. But from the whole talent strategy, It really reflects our overall direction. I would like to add to this.
Chairlady Wang
We have been talking about the transformation of Luo Ya. What is the core of the transformation? In fact, it is still a little different in terms of the interest allocation mechanism of the first line. In the past, Luo Ya's 100% financiers were our own employees. But we still learned a little bit like the insurance agent in the past. He has a relatively low bottom line, but the bonus is relatively high. Chinese insurance companies in the past We don't think it's a good idea to use the mode of cross-sales, middle-class, and high-priced zero-definition, because it can't be directed to the interests of the financier and the client, and it's completely consistent with the client as the center. In fact, if we talk about it, this is the core point of a reform. Then, because we have greatly improved the bottom line, in fact, the quality and density of our talents are significantly improved during this process. Right.
Grant Pan
So, Chair Lady Wang actually wishes to supplement a little bit on this very important point that, you know, the actual structural change actually comes as a result of the transformation that we're doing. As you might be familiar that in the past, although our relation managers are full-time employees of ours, but their pay structure actually has a lower base pay but a higher commission. component in the past scheme. But after the, since the third quarter this year, we have increased the portion of the base pay up significantly. And their bonus actually now is tied with not only with the sales of transactions, but also with the satisfaction from the clients, as well as the quality of operations and services. So we want to transfer Basically, they are not being viewed as a salesperson, but rather a private banker or investment consultant. When they actually pull out their business card, they will gain the respect they deserve. As you can see, the so-called insurance agent model in the industry is actually deteriorating. As you will see, the cross-sale and also everything is sale-first type of compensation schemes actually is not working. that the basic reasons that the interest of the salesperson with the client is actually not aligned. So it's going to be very difficult to last. We have seen pretty obvious results in terms of talent acquisition since the transformation as we are very happily to see that the fresh graduates now come from top schools in China and also the private bankers that we hire are now, you know, basically the senior or seasoned private bankers, you know, from the banks that we typically wouldn't be able to track with the old composition scheme. So this is something that we're going to insist on and continue to invest on to make sure that we actually win the first battle of the, you know, very important war is that the talents. Thank you. Okay, thank you, Mr. Li.
Chairlady Wang
Thank you, Mr. Pan. We just talked about this change and 4 points. At 630, there are about 50% of the financials are doing 4 points. We will finish this this year, but the total cost has not changed much. If you look at the year, the structure has changed. Okay, thank you, Mr. Wang.
Operator
The next question will come from YouSan with CICC. Please go ahead.
Cici
Hello, Mr. Wang. Hello, Mr. Pan. Hello, everyone. I'm Fan You, the driver of Zhongjing. This is Youyou Fan from CICC. I have two questions for you. First of all, the first one is about our customer's AUA. I don't know if the management can share some data about the AUA's growth and the structure of a specific product. Okay, I will translate my cross-reference. So the first cross-reference regarding the AUA, would you please share more data on the AUA and break down by different types of products? And for the second quartering, since we have plenty of cash on our balance sheet, so I just wonder, do we have any plan for dividend payouts?
Grant Pan
Okay. Thank you, Cici. I'll respond to these two questions. First, in terms of the AUA, probably over close to 60% of AUA that we help our clients place is in the private equity. And it's also the category that would be pretty consistent growth for the last few quarters. And also the next major category is obviously the private securities, which accounts for about 30% of the total AOA. And we're seeing some fluctuation, but it's actually probably more or less related to the NAV of the total market and also their products. But that is also the main category that would see the clear attraction for our clients. One category that we're seeing, obviously, is we'll continue to exit and help the client realize their returns is obviously the assets relating to real estate. And I'm happy to share with you that we have very, very limited exposure in this, which actually allows us to be able to have... pretty good asset mix for our clients. So the growth in the private equity, actually also the growth in the private securities, is the direction we're seeing that clients are pretty interested in. And the second question in terms of cash balance, we do maintain very good cash balance as well as operational and investing cash flows. In terms of dividend, we do plan to have a more extended discussions and hopefully we'll have something for the market in the next few months.
Cici
Thank you. Thanks very much.
Operator
The next question will come from Ethan. Go ahead, sir. The next question will come from Ethan Wong with CLSA. Please go ahead.
Ethan Wong
Thank you. I have a quick follow-up question. Mr. Wang, do we have a second listing plan in Hong Kong? Because the U.S. ABR still has a risk of retirement in this environment. And Hong Kong recently changed the listing rules. It's not just a new industrial company. Other industries can do it too. We can do it too. Do you have any thoughts on this? Thank you. Just a very quick question on our status as a foreign listed company, because we understand there are still these listing rates surrounding China's ADRs. And since Hong Kong has just changed its listing rule to allow non-innovation related companies to be listed through secondary listing channel, just wondering if NOAA has such kind of consideration in the near future. Thank you.
Grant Pan
Thanks, Ethan. We actually do pay attention to the development, especially the Holding Foreign Company Accountable Act. And we have had discussions with both our lawyers and our auditors. Obviously, it's something that we do keep a very close eye on. But the professional side... They believe there will be at least some solutions between the two governments. It's more political than actual market governance. And considering the impact of having the whole group of foreign companies that to be exited or actually delisted sort of violently from the market, we don't see that possibility as very high and imminent. But obviously, you know, whatever they... put together to comply with, especially I believe that recent requirements, our auditors actually communicated to us that it's a very heightened disclosure requirement, especially around the VIE structure, blah, blah, blah. All these, we believe that's actually along the line of having more information, more transparency. In terms of, you know, having listing plan on the second market. It's obviously in the sort of plan Bs. We're not actively seeking to do so. We understand the new rules of the Hong Kong listing rules. We also understand the backlogs in the application process. And considering, you know, especially for NOAA, we believe that Hong Kong market probably doesn't provide additional meaningful liquidity for us, but it remains an interesting option.
Ethan Wong
Sure. Thank you.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Mr. Grandpan for any closing remarks. Please go ahead.
Grant Pan
Thank you, operator. I'm very happy to be able to communicate with all the investors and analysts, and I'm happy to deliver another quarter of solid results. especially seeing the good results in Thai activities. We'll have separate clinicals later on, and if you have further questions, I'm very happy to speak to you. Thank you.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer