Shanghai-based wealth manager Noah Holdings swelled its relationship manager ranks by nearly 60 per cent over the last 12 months, sending its cost/income ratio soaring.

Noah Holdings has swelled its relationship manager
ranks by nearly 60 per cent since March 2011, according to the Shanghai-based wealth
manager's first quarter results today, sending its cost/income ratio
soaring.

The number of relationship managers increased to
580 as of March 31, 2012, up 59.3 per cent year-over-year. It hired around 70
in the first quarter alone. As of
March 31, 2012 the firm had 60 branches, having opened one within the last
quarter.

The rapid growth has come at a price. Although net revenues were up 11 per cent to $16.8 million, income from operations in the first quarter of 2012 was $2.6
million, a 60.2 per cent decrease from the corresponding period in 2011. Operating margin
for the first quarter of 2012 was 15.7 per cent, as compared to 43.6 per cent
for the corresponding period in 2011. 

“The year-over-year decrease in operating margin for
the first quarter of 2012 was primarily due to an increase in operating cost and
expenses resulting from the company's expansions outpacing its net revenue
growth,” said Noah Holdings in a statement.

Operating cost and expenses for
the first quarter of 2012, including cost of revenues, selling expenses, administration expenses and other operating income, were $14.1 million, a 65.7 per
cent increase from the corresponding period in 2011.  

Cost of revenues for
the first quarter of 2012 totaled $3.9 million, a 47.6 per cent increase from
the corresponding period in 2011. The year-over-year increase for the first
quarter of 2012 was primarily due to “increases in compensation expenses paid
to relationship managers mainly as a result of the expansion of the company's enlarged
sales force,” said Noah.

Tom Wu, chief financial officer, said, "We
are...focusing on branch management, training and productivity. We will endeavor
to realize economies of scale and to improve our profitability in the coming
quarters."

Nevertheless,
the strategy appears to be paying off. Mirroring the growth in RMs, active client numbers as of
March 31, 2012 increased by 61 per cent year-over-year to 29,814. This figure
includes 28,924 registered individual clients, 824 registered enterprise
clients and 66 wholesale clients that have entered into cooperation agreements
with the company.

Active clients during the first quarter of 2012 were
952, a 44.5 per cent increase from the corresponding period in 2011.

The aggregate value of wealth management products distributed by the
Company during the first quarter of 2012 was RMB5.3 billion
(approximately $800 million), a 5.7 per cent increase from the corresponding
period in 2011.

Of this
aggregate value, fixed income products accounted for 53 per cent private equity
fund products accounted for 44.4 per cent, and securities investment funds and
investment-linked insurance products accounted for 2.6 per cent. The average transaction value per client in the first
quarter of 2012 was RMB5.6 million (approximately $900,000), a 26.8 per cent
decrease from the corresponding period in 2011, primarily due to changes in
product mix as clients purchased more fixed income products that have lower
minimum investment amount than private equity fund products.

"Market environment has started to stabilize in the first
quarter and we continued to focus on implementing our strategic initiatives to
develop our mutual fund distribution business and our offshore business," Jingbo Wang, co-founder and chief executive officer, said. "During
this quarter, we distributed several landmark products, which demonstrated yet
again the importance of understanding client's needs and product
innovation."