Jupai, which has both wealth and asset management operations, is listed on the New York Stock Exchange.
Quarterly net revenue amounted to RMB437m ($64m), according to a filing with the US Securities and Exchange Commission.
The firm reports its revenue in four categories. One-time commissions generated by product distribution (wealth management) constituted 52% of the revenues, recurring management fees (asset management) 22%, recurring service fees for provision of services to other product providers 8%, and other service fees – mainly sub-advisory – 18%.
The only category of revenues that shrank were the recurring service fees, as the firm provided services to fewer suppliers, according to the filing.
Jupai’s chairman and CEO, Jianda Ni, explained it as the firm’s shift to providing “even more inhouse products” in the asset management business.
Income from operations in the second quarter, RMB166m, is three times the same period a year prior, and the net income attributable to shareholders ballooned by 180%, to RMB113m.
Operating costs increased by 42% to RMB271m in the second quarter, with the cost of revenues growing fastest, due to the increase in the number of wealth managers, relationship managers and their average compensation, the firm said.
Conservatively, management estimates revenues in the third quarter to remain flat, between RMB420m and RMB440m, for a year-over-year increase of 31%-37%.
However, the firm has been hit by top level executive departures. It announced on 11 August that Tianxiang Hu, the co-founder and CEO until his resignation on 8 May, had now also resigned from its board of directors “due to personal reasons”. Hu no longer holds an office within Jupai.
Ni said that “going forward, Mr. Hu will remain an important shareholder of Jupai.”
Another co-founder and former COO, Wesley Weishi Yao, resigned in February.
Wealth management
The firm caters to Chinese investors, including those who have left China and now live abroad. Many of them have assets in currencies other than the renminbi. These holdings are not subject to China’s capital control measures, according to Ni.
Chinese wealth management clients continued to prefer fixed income products in the first half of 2017, management said. Fixed income constituted 83% of the value of the products distributed by Jupai in the second quarter. Private equity funds were 13% and third-party equity funds only 1%.
The firm said it had 3,698 active wealth management clients in the second quarter, counting those who purchased a product at least once during the period.
Asset management
Total assets under management were RMB48bn on 30 June, a 86% increase from the year before. Fixed income products accounted for 56%, and private equity for 38% of the AUM. The share of fixed income products has grown and that of private equity has decreased since June 2016, the firm said.
Jupai specialises in fixed-income products with underlying assets in real estate, according to the earnings report. It has, however, been expanding into non-real-estate fixed-income products.
“We cannot rule out the possibility that the market is beginning to turn to risk-on from risk-off, and that equity products may gradually recover in the rest of the year,” Ni said.
“We would like to see more diversified product structure with equity products [playing] a much more important role, as they tend to provide more stable management fees and performance fees.”
Listing on NYSE
Jupai, which was founded in 2012, is one of two Chinese wealth management firms that pursued a listing in the US in 2015. Its older and larger peer Noah, founded in 2005 and holding RMB130bn in AUM, was listed on NYSE in 2010.
“Before Jupai was listed in the US, we only needed to obey regulations in China,” Ni told FSA. “After we’ve been listed in US, we needed to prove ourselves, that we can meet requirements of SEC, which has more stringent regulations.” However, there was no change in business model, Ni added.
The US listing requirements require more transparency in disclosures. Compliance with two regulatory regimes also contributes to operational costs, although details were not disclosed.
Ni believes that the NYSE listing and supervision by the SEC boosts investor confidence, differentiating his firm from domestic peers.
The listing in the US also serves as a way to introduce Jupai to global peers and investors. In early 2016, Julius Baer took a minority stake in the firm.
While the firm did not provide details on its partnership with Julius Baer, Ni said: “In the future, we’re going to have more institutions in cooperation with Jupai. We’re planning to come out with many products with different partners.”
Jupai opened a Hong Kong office last year and this year is planning to open offices in New York and San Francisco, Ni said.
