Noah Holdings: Delivering best practices to the globalising Chinese investor

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This is a sponsored article from Noah Holdings Limited.

 

noah-management

Ms. Jingbo Wang, Chairman and CEO of Noah Holdings, and Mr. Zhe Yin, CEO of Gopher Asset Management

China’s emergent wealth management industry has made significant strides over the past decade on the back of rapid wealth creation and the country’s incrementally liberalising economy. Domestically, early movers have amassed considerable scale in a short period of time and are now expanding their footprints by setting down roots in key offshore markets in a bid to service the international needs of China’s growing HNWI segment.

Standing out amongst its peers, Noah Holdings (Noah) has forged a reputation as an innovator and driver of professionalisation in Chinese wealth management and is fast gaining recognition in the international arena for providing unique and quality investment solutions for globalised HNWIs demanding international diversification.

Founded in 2005 on the back of a management buyout of XiangCai Securities’ private banking division, Noah today is the largest independent wealth manager in China and a leading asset management firm, with a dedicated presence in over 76 cities across top-tier centres and provincial capitals and over 205 branches nation-wide. It is also a ‘firm of firsts’, having become the first Chinese wealth manager to list on the NYSE, the first to receive type 1, 4 and 9 licences from Hong Kong’s Securities and Futures Commission, the first to establish a Silicon Valley office with a complete investment team and, most recently, the first to be rated investment grade by S&P Global.

Now, having built a firm base in its home market, Noah has set its sights on becoming a provider of leading wealth management and asset management solutions to Chinese high net worth (HNW) clients around the world.

To that end, Noah is developing a comprehensive ecosystem of services and products tailored to the needs of increasingly sophisticated and internationally focused Chinese investors, who are hungry for diversification and are eager to learn.

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Kenny Lam, Group President, Noah Holdings Limited.

“Our focus going forward is to further explore and expand overseas distribution channels and establish a relationship manager service network in key global markets where there is a large population of high net worth Chinese,” says group president, Kenny Lam, who points out that globalising Chinese clients are warming to the ideas of family office set-ups and the delegation of investment management, while also demanding stable returns – a recent shift that goes hand in hand with a growing appetite for wealth preservation, as opposed to wealth accumulation.

Further, these clients are looking for currency, industry and asset class diversification – demands that the group is able to meet through its alternative asset management arm, Gopher Asset Management.

Gopher specialises in fund-of-funds (FoF) management, focusing on private equity (PE) – it has the largest and most advanced PE FoF offering in China – real estate investments, hedge funds, fixed income and public market FoFs.

The firm benefits from its access to top performing PE and venture capital funds worldwide, partly through its affiliation with Sequoia Capital, a Noah shareholder that initially invested in the firm in 2007.

Moreover, Gopher is moving to capitalise on its access to leading third-party hedge fund products by scaling up its offering from a FoF approach to a manager-of-manager (MoM) strategy, whereby the firm constructs portfolios after carefully selecting a handful of elite hedge fund managers.

In fixed income – a hot topic in the region given that there remains strong demand for income-bearing investments – the group has diversified its proposition from residential real estate by offering clients exposure to supply chain financing, consumer loans, auto financing and mezzanine debt.

According to Mr. Lam, Noah’s focus on international and alternative products means it has differentiated itself from the “usual plain vanilla approach” taken by most Chinese banks and insurers, many of which are focused on the lower end of the wealth spectrum.

Wealthier clients, based on Noah’s in-house research, have a strong preference for alternative investments. The 2016 Noah Wealth Management White Book shows that an overwhelming proportion of HNW Chinese clients intend to increase their allocations towards PE/VC, offshore assets and fixed income.

 

Proof in the numbers
As evidenced by Noah’s most recent earnings report, the efforts to bolster its product capabilities are bearing fruit. In the three months through June, Noah distributed RMB 33 billion worth of wealth management products, a 19% increase compared with the same period last year.

At the same time, Noah has been supplementing its product suite with a growing range of client services designed for the increasingly sophisticated Chinese client. For instance, the group now offers trust and family office services, education, insurance and philanthropy; and to ensure that clients fully understand the intricacies of these important wealth planning tools, Noah launched its Enoch Education programme in 2013, a client training scheme that focuses on entrepreneurship, family governance and estate planning. Indeed, Noah has not only dedicated significant resources to upskill its own talent pool, but has placed an emphasis on client education on the basis that China’s wealth management industry, for it to mature, requires investors to better understand the virtues of asset allocation and the relationship between risk and return.

Owing to its broadened ecosystem of products and services, along with the significant growth in wealth in the country, Noah’s client base has swelled.

At the end of June, the group had 164,728 clients – a 43% increase from a year before – the vast majority of whom are business owners. At the same time, Gopher oversaw client assets worth RMB 138.7 billion, or 37% more than a year before.

Risk control: raising the bar
As China’s wealth management industry matures, responsible risk management is becoming more critical than ever, especially as investors are exposed to a universe of product that varies in quality. To quote Noah’s Lam, “growth must go hand in hand with the right degree of risk management” – and that is exactly how Noah approaches product due diligence.

Noah’s frontline of 1,259 relationship managers – for context, industry titan UBS Wealth Management had 1,008 client advisors in the Asia Pacific at last count – is supported by 180 in-house product professionals, who screen and perform stringent due diligence processes on 2,000 projects each year, ultimately green-lighting a fraction.

Moreover, under the company’s full-cycle rating and risk management system, it screens accredited investors, qualified fund managers and products in order to mitigate financial and compliance risks.

“Within our active post monitoring of products and managers, less than 1% of the US$70 billion we have distributed or managed so far are in a ‘requiring active and constant monitoring’ category,” says Mr. Lam.

Similarly, Noah’s aforementioned education initiatives, which include client events, university-grade programmes and communication campaigns, are partly aimed at raising investors’ risk awareness. Indeed, the company’s stringent risk management processes and strong market positioning played a significant role in it receiving an investment grade rating from S&P Global Ratings in July.

“Noah’s prudent risk appetite and risk management practices also support its business position in China and resilient financial performance, in our view,” the ratings agency said in a statement, adding that the wealth manager clearly communicates investment risks to its clients.

International expansion gains traction
Noah’s global push is premised on servicing HNW Chinese the world over, and its most recent results reflect the progress it has made in this regard. As of June 2017, the firm’s offshore AUM rose 23% year on year to reach RMB 18.2 billion.

Beyond China, the firm has a presence in Hong Kong, Taiwan, the US and Canada, and it was the first Chinese firm to establish a trust business in Jersey. It intends to build on this base by expanding into geographies where there are large populations of HNW Chinese, including Australia.

“We believe demand from [Chinese] high net worth clients for global asset allocation is a structural trend,” Mr. Lam said in May.

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William Ma, CIO, Noah Holdings (Hong Kong).

More recently, Noah has established a Global Family Office, whose clients are serviced by a pool of 80 relationship managers – or family office bankers – who are be surrounded by a team from across the firm.

The decision to ‘go global’ with its family office offering was largely driven by what the firm describes as a “structural change” in Chinese clients’ perceptions of discretionary management.

“Other players have limited exposure to the private equity and venture capital space and less exposure than we do to the real estate space,” says Mr. William Ma, CIO for Noah Holdings (Hong Kong). “If you look at our all-round endowment approach to portfolios, we believe those components are essential. Also, we are targeting about 30% offshore assets for clients’ portfolios in China through official channels.”

Indeed, the onshore and offshore opportunity for Noah and its peers is immense, considering that the number of HNW families in China is forecast to nearly double from 2.1 million in 2016 to 4 million in 20211. With its broadening network of offshore centres, sound risk policies and its industry-leading approach to developing a comprehensive suite of products and services, Noah is well placed to cater to the needs of the new age Chinese investor.

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1 Source: Industrial Bank & BCG report, 2017

 
This is a sponsored article from Noah Holdings Limited.

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