Earnings Call Transcript - NOAH Q4 2021

Operator, Operator

Good day, and welcome to the Noah Holdings Fourth Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Chairlady Wang. Please go ahead.

Jingbo Wang, Chairlady

[Foreign Language] On today’s conference call, first I’d like to talk about my observation of the micro environment, then report on Noah’s overall results in 2021 and performances of major business segments. Our CFO, Mr. Pan Qin will then introduce detailed annual financial results of the company, followed by a Q&A session. Looking back on the past year, we once again experienced the complexity and periodicity of the financial markets. In China, the wealth management and asset management industries have undergone paradigm transformation; the industrial changes, business ecology, and characteristic positioning are different from those in the past. The industry has ushered in an interaction point in the evolution of business model. The loose supervision cycle ended and the sales orientation became the past. The underlying assets provided by domestic private banks to clients migrated from real estate bonds to NAV based bonds, embracing the era of equity products. We believe that we must replace the sales mindset with a client-centric one in order to survive the competition. Investors and practitioners have been gradually maturing; the aging population and increased residence wealth is helping continuous growth of the industry. All these developments show that China's wealth management industry is developing steadily and healthily. At the same time, the inflation of risky assets is prevalent across the globe due to the quantitative easing policy and surplus of liquidity that have persisted for a long time. The reversal of quantitative easing will change regulatory models and market valuations of many industries. Over the past 10 years, China's economy has achieved remarkable growth. But there are also certain major structural issues that concern the market; shadow banking, realistic imbalance, financing platforms, over-capacity in industries, as well as resource industries with high pollution and high energy consumption. After a long-term firm adjustments, we can see that in 2022, the shadow banking, real estate, and government invisible liabilities that the central bank worried about in the past have been corrected. China's micro strategy of steady growth and structural adjustment has achieved good results. In 2022, China's economy will further return to the real economy. The manufacturing industry will be upgraded iteratively. The industrial competitiveness will be significantly improved. Small and medium-sized enterprises will continue to be active and enjoy low tax rates; manufacturing, exports, and key supply chains have shown strong resilience and vitality. China's private enterprises pay more attention to high-quality development and begin to seek benefits in management. These findings allow us to have full confidence in China's economy and the market. While the ongoing Russian-Ukraine war is worrying, we can be sure that in this process, the market will continue to fluctuate from the perspective of understanding the financial needs and wealth sources of the market. In the first strategy report of NOAH CIO office in 2022, we plan to suggest our wealth management clients to adopt the strategy of protection before growth. First of all, actively check the asset allocation of themselves and their family and ensure asset protection and safety. Secondly, further balance their global asset allocation and consider the long-term situation of excessive currency issuance and inflation in the secondary market. We will primarily utilize a multi-strategy portfolio allocation strategy in the primary market and adopt the strategy to pay more attention to cross-cycle early investments in hard technology. In 2021, Noah made a great step forward to successfully transform from non-standardized products to NAV-based products and further optimized the asset location for clients. We also internally and structurally promoted the transformation from product-driven to client-centric. Despite the impact of the epidemic, Noah still achieved unprecedented growth in terms of net revenues, non-GAAP net income, the number of black card and diamond card clients, and the number of active clients in 2021. Throughout the year 2021, Noah achieved net revenues of RMB4.3 billion, an increase of 30% year-on-year and achieved a non-GAAP net income attributable to shareholders of RMB1.4 billion, an increase of 22% year-on-year, which is also 14.4% higher than the annual guidance. Despite the effects of the epidemic and volatilities in the market, our net revenues and net income both hit record highs. We believe that the success of our business is inseparable from the trust of our clients. Currently, Noah's assets under advisory are approximately RMB280 billion, over 85% of which are private equity and private secondary products with local periods. With respect to the overseas market, in 2021, we reported a net revenue of RMB1 billion, a 38.6% growth year-on-year and a 7% growth compared to 2019, indicating the performance of the overseas market has rebounded to the pre-epidemic level. One-time commissions, management fees, and performance-based income increased by 43%, 4.4%, and 243% year-on-year. Overseas transaction valuation reached RMB14.3 billion, a significant increase of 61% year-on-year. The overseas AUM was RMB28.4 billion, accounting for 18.2% of the total AUM of the group, representing an increase of 14% from the end of 2020. I thank Noah's overseas colleagues for their outstanding achievements under the influence of the epidemic. In terms of core business data, the net revenue of the wealth management segment reached RMB3.2 billion, up 35% year-over-year. The transaction value of financial products was RMB97.2 billion, a slight increase of 2.6% year-over-year, among which private equity was RMB18.1 billion, up 1.1% year-over-year. Private secondary funding standardized products was RMB37.8 billion, up 7.4% year-over-year. Mutual funds was RMB37.2 billion, a slight decrease of 2.1% year-over-year. Affected by the risk aversion of clients on market fluctuations in the second half of the year, the transaction value of other comprehensive services such as insurance products reached RMB4.2 billion, a year-over-year increase of 35%. In 2021, the high net worth clients of Noah continued to grow and remained active. The number of total active clients, including mutual fund-only clients, exceeded 42,000, up 25% year-over-year. The aggregate number of black card and diamond card clients increased by 18.2% in the year, of which the number of black card clients increased by 38% and diamond card clients increased by 14%, growth that exceeded our expectations. The fact that the three main categories of client numbers reached record highs again indicates our client ventures and transformation have been well received by other clients. The transformation of our marketing strategy gave birth to the Noah Triangle service model, which focuses on coordinated business development and professional specialization. It has proved to be effective in upgrading our service quality and enhancing client stickiness. In 2021, we also launched the Smile Treasury, a SaaS platform to connect small and medium-sized enterprises and allow them to buy mutual funds with tailored treasury services for convenient online cash management, with the aim to help improve the investment and operating efficiency of corporate cash and to satisfy their needs for working capital management. By the end of 2021, Smile Treasury covers 95% of the mutual funds and 90% of the mutual fund managers in the market, serving institutional clients from 14 industries including real estate, finance, and technology. The asset management business reported a net revenue of RMB1.04 billion, an increase of 19% year-on-year, Gopher’s AUM increased slightly by 2%, reaching RMB156 billion, with continued optimization of the asset mix. To be specific, the AUM of private equity was RMB131 billion, up 11% year-on-year. Public securities was RMB11 billion, up 13.4% year-on-year, while real estate assets decreased by 48% year-on-year to RMB6.6 billion, including US rental apartment funds. Gopher’s asset structure has been continuously optimized, now healthier and in line with expectations. For public securities, by the end of 2021, Gopher’s standardized products have delivered steady investment performance. Among them, the annual return of Gopher Megatrend MOM manager's fund was 14.2%, exceeding the benchmark return rate by 9% during the same period. Gopher’s top 30 hedge funds showed an annual return of 13%, beating the benchmark rate by 4.5% during the same period. Gopher’s overseas selected ESL funds had an annual return rate of 16%, exceeding the benchmark by 10.5% during the same period. It is worth mentioning that Gopher’s wealth stabilizer product target strategy, with its stable strategy launched in August, balanced and positive strategies launched in April 2021, achieved cumulative returns of 1.1%, 4.9%, and 5.4% respectively by the end of 2021, effectively limiting fluctuations and controlling the pullbacks amid market volatilities for clients. In terms of private equity, Gopher continued to promote the establishment and investments of funds of funds as secondary funds and co-investment funds. Funds of funds positioned capital in cutting-edge technology and healthcare sub-funds with more than 7,000 underlying companies through more than 230 sub-funds. Secondary funds have been ranked as one of the top 20 best secondary funds in the world by the Global FOF Association for the second consecutive year in 2021. Gopher's direct and co-investment funds mainly focus on areas such as early-stage FinTech, consumer, technology, and pharmaceutical projects. Gopher Silicon Valley venture capital funds and Gopher New York's Real Estate Fund have achieved large scale successful exits from certain projects in 2021 with excellent investment returns. Gopher has constructed an effective investment research system and team composed of a fund research team, MicroStrategy research team, and industry research team. A process and integrated product development process has been implemented for all funds managed by Gopher around the world. In 2021, in accordance with our strategic progression plan, we finished a reform of qualification systems for relationship managers and greatly increased the base salary for them. The company continuously makes strategic investments in three areas; including client interface, technology system, and investment research. In 2021, the number of clients grew significantly thanks to the strategic investment in the core client base, and the client service experience has also been enhanced. In 2022, we will continue to invest in the development of core client bases and in key cities, the improvement of technology and investment research capabilities, so as to pave the ground for long-term healthy and sustainable growth for Noah, while maintaining profit growth at a reasonable level. Since 2014, Noah has been publishing the Noah corporate sustainability report for seven consecutive years. The report was awarded the AAA high-risk rating for excellent corporate and social responsibility by the Ministry of Industry and Information Technology at the fourth China International Import Expo, an honor awarded for the first time to a private financial company in China. In 2021, we launched special ESG functions on our domestic fund and overseas Noah platforms. Among the Gopher investment portfolio, a number of excellent investment cases in line with the principle of sustainable development have been identified. Together with our partners and clients, Noah has organized plantings in forests, consisting of approximately 360,000 trees in the Tengger desert and identified 23 rare species through Noah's Ark Biodiversity Conservation project. In 2021, verified by the international certification body SGS, Noah obtained the company's greenhouse gas emission certification as per international standards, certification systems latest carbon verification qualification, and reporting standard ISO 4140641-2018, becoming the first enterprise in China to practice this version of the standard. In addition to focusing on sustainable development and fulfilling corporate social responsibility, Noah also actively promotes women's equal rights. In 2021, I signed a support statement on the principle of empowering women at UN Women. I'm very pleased that by the end of the year, female employees accounted for 62% of all employees at Noah, female executives accounted for 37%, and there is no significant gender-based income gap, with one-third of female members in the company's Board of Directors. Noah also won the UN Women Asia-Pacific WEPs award for transparency and reporting in China this year, marking the only enterprise to win the award in the country. I’d also like to give you an update on our status regarding the Holding Foreign Companies Accountable Act. The SEC estimated that 273 registrations might be identified as Commission-Identified Issuer under the Act. We anticipate that a large number of US-listed companies with operations in Hong Kong and other parts of China will be added once we file our annual report with SEC around April this year. The Act is part of a continued regulatory focus in the United States on access to audit and other information currently protected by national laws, particularly China's. The Act requires the SEC to prohibit the securities of any covered issuer from being traded on any of the US securities exchanges if the auditor of the covered issuer’s financial statements is not subject to inspection by the US Public Company Accounting Oversight Board for three consecutive years, beginning in 2021. Noah Holdings may be provisionally named as a Commission-Identified Issuer following our filing of the Annual Report on Form 20-F at the end of this month with SEC. Thus, our company's American depositary shares may face the risk of being de-listed from the New York Stock Exchange in early 2024. In addition, legislation is being considered in the US to shorten the number of non-inspection years from three years to two years. We will continue to monitor market developments and evaluate all strategic options. In 2021, we repositioned Noah to focus on serving global high net worth clients as a one in 100 wealth management company by connecting leading asset managers around the world to provide high-quality wealth management services for high net worth families and institutions. In 2021, with the united efforts of a seasoned team, Noah moved forward without burdens and achieved sustained net revenues growth and drove our net income to a new level without any exposure to real estate high-yield bonds. We’re in a rapidly growing industry. We respected common sense and market rules, reflected and corrected ourselves after encountering risks. So even under the complex market conditions in 2021, we still successfully protected the interests of most clients and created long-term value for them. In 2022, Noah will continue to understand and reflect on the wealth management industry and the changes and variants in market and client needs. We respect common sense, respect markets, continue to deepen organizational change, and truly practice from product-driven to client-centric survival as the bottom line and remain professional, people-oriented to create value for our clients. China's wealth management and asset management industry is at an inflection point. The future market will further test our professional capabilities in asset allocation, client service, and technology. Noah will continue to work in the direction of being committed, specialized, and in-depth to achieve one meter wide and a thousand meters deep, fixing benefits in management and becoming a one in a hundred wealth management company for global high net worth clients. I'm certain that we still have a lot of growth space, and we will go a long way. Today, Noah's positioning is clearer and more focused. The brand vision of Noah is wisdom beyond wealth; we devote ourselves to creating a legacy for generations to come. Now, please welcome our Group CFO, Pan Qin to report on detailed financial performance in 2021. Thank you.

Qin Pan, CFO

Thanks, Sonia. Thank you, Chairlady, and hello investors and analysts. Looking back at 2021, it's been a very challenging year, as supply chain inflationary pressure has hit globally amid new variants and outbreaks of COVID-19, coupled with stricter regulatory policies in many industries and bumpy equity markets. However, it also makes us special that the young but vibrant Noah has accomplished a record-setting year with unprecedented achievements across revenue and profits, benefiting from a well-executed client-focused strategy and our investment in client relationships that paid off. Now, please let me walk you through the detailed financial results of the fourth quarter and full-year 2021. Net revenues for 2021 were RMB1.3 billion, up 30% year-over-year and also the highest since listing. That's not just increases in performance-based income and revenue arising from the distribution of insurance products. Benefiting from the successful execution of the core client strategy, one-time commissions grew 57% to RMB1.3 billion; recurring service fees were RMB2.1 billion, up 9% year-over-year, as a result of a larger asset base we managed for our clients. Performance-based income achieved another milestone, amounting to RMB780 million; more than doubled from the previous year. Specifically, long-duration private equity products and private secondary products accounted for 46% and 48% of performance-based income, respectively, again demonstrating our excellent investment and product selection capabilities that in turn translated into value creation for our clients. Income from operations was RMB1.2 billion, down 5% year-over-year due to increased talent retention and acquisition efforts, continuous strategic investments in client experience to better meet the evolving needs of our high net worth clients, as well as expenses incurred related to our new headquarters renovation. For instance, we increased our investment in technology, investment, and research talents by RMB120 million as part of our talent acquisition strategy. In 2021, we continued to set aside a strategic budget totaling RMB133 million, which accounted for about 3% of annual net revenue, covering key initiatives, including client acquisition, client interfaces, digitalization, development of new products, compliance transformation, as well as operational enhancements in key cities and regions. I'm happy to note that these investments have harvested excellent results, as we have accomplished significant improvements in technology infrastructure and investment research capabilities, as well as record-breaking growth in our client group and overall client activity. Investment income was RMB65 million compared to a loss of RMB86 million from 2020. Equity in earnings from affiliates more than tripled to RMB302 million from the previous year. These were mainly attributable to fair value adjustments made to the group's direct investments and the underlying assets of Gopher’s funds. We recorded a non-GAAP net income of RMB1.4 billion for the year, a 22% increase year-over-year with a profit margin of 32% and 6% over the upper end of our annual guidance. We plan to continue our strategic investments in areas where we can strengthen our unique positioning and competitive advantage to achieve continued growth over the long term while maintaining efficient and disciplined expense management. In terms of segmented results, net revenues from the wealth management business were RMB3.2 billion for the year, up 35% year-over-year, accounting for 74% of the total net revenues of the group. The growth in our wealth management business was supported by robust client activities and strong growth in core clients. Total active clients, including mutual fund clients during the year was 42,764, a 25% jump from the previous year. Expanding our diamond and black card client group was one of the key strategic initiatives for the year and we have made great accomplishments on this front with 14% and 38% increases in diamond and black card clients respectively, and an 18% increase overall. We have deepened our wallet share of existing clients through effective new client acquisition strategies, which includes more targeted marketing spending, high-quality offline client activities, refined client-centric progress powered by our Noah Triangle service model, as well as digitalized time management and analytical tools, essentially indicating effective client-centric reform. Total Transaction Value for 2021 was RMB97.2 billion, up 3% year-over-year. We noticed and respect the client's flight to safety sentiment in interest and market volatilities and successfully allocated more insurance products, while maintaining slight increases in private equity and private secondary funds products. The net revenues from the asset management business were around RMB1 billion, up 19% year-over-year. We continued to exit private credit product assets and real estate assets in 2021 and successfully maintained a marginal growth in AUM with a net increase of 2.1% to RMB156 billion. Since the start of the standardization transformation, Gopher has exited and distributed over RMB32 billion of private credit assets to our clients. The mix of our AUM has been optimized as our private equity and public securities AUM grew by 11% and 13% to RMB131 billion and RMB11 billion respectively, while real estate AUM decreased by almost 50% to RMB7 billion. Despite the COVID-19 pandemic, our overseas business reported exceptionally strong growth, with net revenues increasing by 39% year-over-year to RMB1 billion, driven by larger AUM and a 243% increase in performance-based income. We're proud to have a resilient and diligent team who strive to create value for our clients. By the end of 2021, we offered more than 1,300 standardized products on our offshore online platform at Noah, and we will continue to strengthen our capabilities in providing global asset allocation services for clients. When it comes to our fourth-quarter results, net revenues were RMB1.3 billion, up 32% year-over-year and 39% quarter-over-quarter. This also marks the highest single quarter industry one-time commission of RMB479 million, up 76% year-over-year, and 123% quarter-over-quarter. Recurring income was RMB558 million, up 28% year-over-year and down 2% quarter-over-quarter. Performance-based income was RMB173 million, down 16% year-over-year but up 111% quarter-over-quarter. Total operating costs and expenses were RMB1.1 billion, up 83% year-over-year and 66% quarter-over-quarter, mainly due to increased expenses related to offline activities including a series of Black Card and diamond events as well as increased commissions in relation to higher insurance sales in the quarter. As a result, operating profits were RMB132 million, down 61% year-over-year and 42% quarter-over-quarter. Non-GAAP net income, on the other hand, was RMB290 million, up 10% year-over-year and 2% quarter-over-quarter as equity earnings from affiliates increased by 300% year-over-year and 150% quarter-over-quarter to RMB161 million due to favorable fair value adjustments made to the underlying assets of Gopher. The bumpy equity market throughout the quarter led to a swift shift in investment preference from our clients, resulting in a 13% quarter-over-quarter decrease in our transaction value during the period. However, we were able to cater our diverse product offerings to meet our clients' changing risk appetite, which in turn led to more allocation of insurance products and solid financial results for the quarter. In terms of balance sheet, our cash has increased to RMB3.4 billion and total assets stood at RMB10.9 billion as of December 2021. Our current ratio was 2.4 times and debt to asset ratio was 25.2%. Again, with no interest-bearing debt, we're mindful about the usage of cash when facing uncertainties, but also considering to install long-term shareholder return mechanisms when the timing is right. Looking forward, we are likely to see another year mixed with uncertainties and market volatility and perhaps escalated frequency of disruptions that travel and commuting when China adjusts to post-COVID-19 times. The chairlady has mentioned our clients have demonstrated high risk-averse preferences and we're committed to refining our client services and product offerings, essentially creating value for clients and shareholders by enhancing our product selection, research, and technology capabilities. In 2021, we successfully converted a difficult market environment into record-high net revenues and net income. We believe the contributions to clients and tenants are, if not the only reason. In 2022, we plan to provide a broader variety of market risk-neutral alternatives, such as Gopher's target strategy products, fixed income, hedge funds, and insurance products. I'm confident they will continue to deliver growth in 2022 by enlarging the core client base, increasing market share, and gaining more wallet share from existing clients. At the same time, we'll continue to implement a strategic budget in 2022 to focus on core client acquisitions, enhancements in key cities, incubation of innovative products and services, as well as key operational and digital transformations to set the structural foundation for long-term growth. With that in mind, I would like to announce that the non-GAAP net income guidance for 2022 will be in the range of RMB1.45 billion to RMB1.55 billion, reflecting management's current business outlook. Thank you everyone for listening. I will now open the floor for questions.

Operator, Operator

We will now begin the question-and-answer session. The first question today comes from Ethan Wang with CLSA. Please go ahead.

Ethan Wang, Analyst

[Foreign Language] I have two questions. The first one is based on the fourth quarter last year and year-to-date market environment, have we seen any change in the product preference in terms of mutual fund and employee segment products? That's the first question. The second question is related -- has been kind of, fast back in first quarter, we mentioned that it's mainly due to talent acquisition. So, just wondering if management can explain more details on our strategic consideration behind our cost growth, it doesn't fit in the context of this year's market environment and the COVID situation in China? Thank you.

Qin Pan, CFO

[Foreign Language] First of all, to your question, Ethan -- on your first question, it seems pretty apparent that our clients have turned quite conservative in terms of investment preference. But we have tried our best to exit some of the products that are already earning profits and distribute that back to our clients. However, our clients are more conscious this year in terms of the health check of their overall asset allocation strategy. So, obviously, we have noticed a shift to holding cash or allocating more assets towards insurance products, as well as some of the trust structural designs to have segregation of assets from more risky returns. So that shift is actually pretty obvious, I would say. In terms of the outlook regarding the COVID-19 situation, it seems that it's probably not too big of a question, when there will probably be different cities and towns that have continuous but occasional shutdowns towards the 20th Annual National Conference. But we’re also actually looking at that as an opportunity when actually people get shut off from offline activities. They probably intend to trade and allocate a little bit more online, and are also more willing to engage in interactions with us in terms of knowledge sharing tips, okay. So that's the first question. Regarding the second question concerning costs in the fourth quarter, it's actually a little bit of, I guess, a mix of seasonality and also the result of transformation.

Ethan Wang, Analyst

[Foreign Language] That's all for your time, Qin.

Qin Pan, CFO

Thank you, Ethan.

Operator, Operator

[Operator Instructions] The next question comes from Emma Liu with Bank of America. Please go ahead.

Emma Liu, Analyst

[Foreign Language] So I will briefly translate my question. The first question is that recently there has been a significant performance drop with China API as well as Hong Kong stock, so how will it impact Gopher’s AUM performance, as well as these products of third-party managers, and how will it impact the investment behaviors of your clients? My second question is related to your cost. I think that the books are large, correct, because for your lending business, so what is the progress of restructuring your lending business and do you continue to book more credit costs for the business going forward? We see that your net margin declined to 21% to 22% in the fourth quarter; previously you guided that you wanted to spend net margin between 32% to 35%. Do you continue to expect that? We also see that the number of your RMs declined in the fourth quarter. What's the reason behind it and what are your plans for RM builds this year? Thank you.

Qin Pan, CFO

First of all, I think, in Chinese 2019, we started the transformation, you know, which was pretty lucky because they gave us some room and time to adjust the product mix. As of the end of 2021, we have pretty much completed the exit of private credit products, as well as any credit exposure that relates to real estate, which has made our portfolio stable for our clients. We also noticed the emergence of a new group of clients who have experienced some losses from other institutions where they had investments in so-called non-standard private credit products. This will be a new group of clients that we can help with their allocation of assets this year. In terms of portfolio of Gopher and NOAH, as you know, the majority of the assets, the AUM that we have is within the primary market, the P-products, but also in 2021, we exited some of the products for clients to materialize the gains on the products that they have. So overall for the clients of NOAH, they're positioned relatively well compared to the volatility seen in the public markets, especially recently. One of the things we've also noticed is that the demand for asset allocation has turned towards more risk-averse preferences as well as high interest in terms of protection and allocation type products. A key transformation initiative for Gopher is to become the fundamental layer of choice for a client's asset portfolio, for example, offering secondary key products, which generate quicker cash returns for our clients, balanced portfolio products that yield moderate returns but provide more stability. We have seen some of the products show resilient returns, including the CPA type of products and multi-strategy products that have maintained small but positive returns recently. So, there is the working strategy in a highly volatile market. But some of the major hedge funds we held for clients have a three-year lockup period, which provides another layer of protection for clients' assets amid uncertainty. Moving on to your second question, regarding credit loss on the loan products, we proactively have retracted from the original loan products. If you recall, in 2019, we issued products on the loan backed by some of the relative products, and we have decided overall to cease offering similar products. We expect continued restructuring as we exit these types of products. Majority of the credit loss has already been computed based on our validation model with the audit. We don't foresee a large increase in that type of reserve going forward as we continue to expand our business. As for your third question regarding net margin, as I explained in Ethan's question, it’s a pretty concentrated marketing season with a series of marketing conferences including offline black card events across cities that also contributed to increased costs. Additionally, the increase in fixed payroll has also put a little pressure on the costs in that single quarter. When discussing our net margin, we typically measure it from our annual budget process, which aims to maintain around 30% to 35% operating margin for the year. I guess the fourth quarter is a low quarter for this. From that standpoint, that's still the goal we are maintaining. Regarding the decline in our RMs, we made some proactive adjustments. As we mentioned in the transformation, when forming the plan book, we are only appointing high-performing relationship managers into direct client-facing roles. There have been regrouping activities, especially in absorbing the last half of the RM group into the reform, resulting in a bit of volatility in our mix of RMs. However, we've plotted a reasonable budget for recording in 2022 as we believe the market is a good timing to heighten investment in talent acquisition this year.

Emma Liu, Analyst

Thank you.

Qin Pan, CFO

No problem, Emma.

Operator, Operator

[Operator Instructions] The next question comes from Andrew Clareon with MF Value. Please go ahead.

Unidentified Analyst, Analyst

Hi, thank you for taking my question. I was hoping to ask a question on capital allocation. You all have an exceptionally strong and clean balance sheet, which I think is a testament to the quality of the business, with over US$500 million in cash and your headquarters, which I think you purchased just this past year, against virtually no debt on the business. Even with the strategic investments and talent that you've made, it sounds like you're projecting quite a healthy cash flow positive year next year. With the volatility that we've seen in the share price, do you consider spending some of that cash for share repurchases? At the end of 2020, I think you spent about US$100 million on share repurchases at prices that were a 30% to 40% premium to where the stock price closed today. So I was hoping to understand your willingness to maybe look at capital allocation in terms of returning value to shareholders through that mechanism.

Qin Pan, CFO

Thank you, Andrew. [Foreign Language] So thanks, Andrew. To put it simply, that's definitely one of the considerations we have and also a topic we've discussed extensively in internal meetings. I'm very conscious of the ROE of our stock, and at this time, it seems to be at a very low point. I guess I am actually not in a position to comment too much on this, but I just wanted to share with shareholders and analysts that we're definitely keeping that in mind regarding the timing. We are planning to install some shareholder return mechanism that will probably include various tools, but we have to wait for the right timing. It reflects our management style to retain liquidity to cope with uncertainty in the market, but at the same time, I’m also conscious of creating value and returns for our shareholders.

Unidentified Analyst, Analyst

Okay. That’s helpful to understand. Thank you.

Qin Pan, CFO

Thanks, Andrew.

Jingbo Wang, Chairlady

[Foreign Language] Okay. So, Chairlady Wang supplemented some comments on this question. First, especially regarding the stock price, for the Chinese FPIs overall at this low point, the majority of values are not reflected accurately. However, for management, we're still very optimistic about our future, especially the industry and also the company's position in this particular situation. We're fortunate to have started our formation probably two years earlier. We have no burdens, either from the balance sheet side or portfolio of AUM and managed to protect the majority of clients' assets through this wave of uncertainty and market volatility. As evidenced by the return of our core group of clients, which has been competitive, with resources devoted to gaining clients—we still managed to see an 18% increase in our client group in 2021. So we are in a pretty good position, and as I mentioned, I am also the biggest shareholder of the company; I'm very conscious of value creation and return for shareholders.

Unidentified Analyst, Analyst

Thank you for the additional commentary; very helpful. And yes, I think it's indisputable that operationally, you all have been exceptional in terms of execution, and from a shareholder's perspective, it's been a pleasure to observe, and congratulations on all the success. I think from a shareholder's perspective, seeing some positive signals on a capital allocation front would be a great addition, emphasizing the optimism. So we look forward to the future with great anticipation.

Qin Pan, CFO

Great, thanks, Andrew.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Grant Pan for any closing remarks.

Qin Pan, CFO

Great! I don't have any more remarks. Thank you, everyone, for your time. We have several conferences scheduled. We will talk to you soon during those calls. Thank you.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.