Policy on the Japanese Stewardship Code
Since our establishment, SPARX Asset Management Co., Ltd. (hereafter, "the Company") has taken a bottom-up approach to our investment activities that centers on dialogues with management of our portfolio companies, based on its consistent investment philosophy that "Macro is the Aggregate of Micro." The fundamental principles of the Japanese Stewardship Code are to promote sustainable growth of portfolio companies and strive to expand medium- to long-term investment returns for beneficiaries. Because these principles are consistent with our investment philosophy, we have proactively accepted this code and created our policy in compliance with its principles as stated below.
The timing to have "constructive engagement" with investee companies and the degree of encouragement we provide during these discussions will vary by our investment strategies and by the circumstances of the investee companies at the time.
Principle 1. Institutional investors should formulate and publish a clear policy on fulfilling their stewardship responsibilities.
Since its inception, the Company has worked to develop innovative investment methods and to offer investment intelligence born from its thorough bottom-up approach. These are based on its consistent investment philosophy, "Macro is the Aggregate of Micro."
After researching current conditions of medium- to long-term business prospects for investee companies and investment candidates, we conduct on-site company inquiries. We execute investments in companies if they are deemed to have rational operations and the potential for improved corporate value.
The engagement process is aimed at providing support for improving corporate value. We speak with management teams to understand management issues and voices its opinion. These conversations are aimed not only at companies in which we invest in, but also potential investments. Discussions about ESG-related topics are meant to resolve both current and potential future issues.
Our bottom-up approach in the Listed Stock Investment Strategy contributes to increased value in investee companies, while also improving investment returns over the medium- to long-term. Furthermore, to enhance our capacity to respond to ESG issues, we have adopted a new framework for implementing responsible investment by establishing an ESG Committee (currently responsible investment committee).
We have a policy to adequately meet its stewardship responsibilities in order to qualitatively improve and enhance its bottom-up approach.
Principle 2. Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
SPARX Group Co., Ltd., our parent company (hereafter "SPARX Group") is an independent company without capital ties to any other financial group. We are also Japan's first listed company whose subsidiaries operate mainly asset management businesses, so we have completed numerous efforts to establish a code of conduct sufficient to earn a high degree of trust from the market. Half of SPARX Group's Board of Directors is occupied by independent outside directors, giving the firm a governance structure that allows for the proper management of conflicts of interest. SPARX Group thoroughly manages its subsidiaries to ensure the utmost transparency.
In principle, we prohibit any investment activities that could lead to a conflict of interest with our investors. Furthermore, conscious of the fact that we operate a type-1 financial instruments business, we have stipulated the types of transactions involving conflicts of interest that need managing, and how they will be managed as a part of our policy for managing conflicts of interest. An outline of these rules (see note) is available on our website. (https://www.sparxgroup.com/pri.html)
Principle 3. Institutional investors should monitor investee companies so that they can appropriately fulfill their stewardship responsibilities with an orientation towards the sustainable growth of the companies.
We pursue to understand corporate strategy to maximize value over the medium- to long-term. Through bottom-up research, we analyze not only public information, but also actively engage in discussion with top management to determine the appropriate corporate strategy and governance.
Analysis and monitoring of a company utilizes more than just financial data. It includes qualitative structures and relationships with all stakeholders including clients, employees, partners, local communities etc.
Principle 4. Institutional investors should seek to arrive at an understanding in common with investee companies and work to solve problems through constructive engagement with investee companies.
Since our establishment, through countless discussions with management we have worked to acquire expertise not only in a financial context, but literacy related to the operations of these companies. SPARX demonstrates its support for activities that promote corporate value growth through continual research activities. By investing in such companies, we simultaneously express constructive criticism to encourage changes in companies that have room for improvement.
We proactively invest in companies where management strategy is improving corporate value. In contrast, to protect the interest of beneficiaries, a disinvest decision is made if management employs policies which inhibits sustainable growth. Separately, we operate specialized strategies in which funds actively promote change to corporations by exercising shareholder rights.
We recognize collective engagement as a part of effective measures, especially in terms of having dialogue with companies and shareholders. When other institutional investor shareholders request assistance with companies held within our portfolios, we carefully examine the importance and appropriateness of these discussions as part of the strategy. If or when we have determined engaging in dialogue with investee companies would be more effective in collaboration with other shareholders, then we may ask other shareholders to participate in collective engagement.
Our insider information compliance structure prohibits all securities trading activity based on material non-public or insider information in accordance with the Securities and Exchange Surveillance Commission. While we aim to eliminate any discovery of insider information, if any insider information is gained during engagement, the information is recorded and monitored according to company policy, and appropriate compliance actions are put in place.
Principle 5. Institutional investors should have a clear policy on voting and the disclosure of voting activity. The policy on voting should not be comprised only of a mechanical checklist; it should be designed to contribute to the sustainable growth of investee companies.
We execute investments after researching and understanding target companies' management policies, growth potentials, business models, corporate governance issues, and other matters through a bottom-up approach within the core of its listed stock investment strategy. When exercising voting rights, we make decisions based on whether any given agenda item contributes to corporate value-growth over the medium- to long- term. The voting guidelines and management processes for each type of shareholder vote are defined in our internal bylaws, and the basic policy is publicly available.
Policy on the Exercise of Voting Rights (https://www.sparx.co.jp/ins/ourfirm/sustainability/proxy.html)
We take a fully active approach to manage listed stock investments, with investment managers researching all investee companies and only acquiring stocks after ascertaining the quality of their management teams. Leveraging this unique approach, we do not establish external or quantitative voting criteria for exercising shareholder voting rights. Instead, our investment managers individually decide whether to vote for all shareholder votes based on their understanding of a said company's situation and on the question of whether the proposal contributes to corporate value growth. Regarding the results of our exercising voting rights, we will disclose the fact when we oppose a company proposal and when we support shareholder proposal. Additionally, regarding proposals that may be suspected, based on outward appearances, of involving a conflict of interest, we announce the reasons for the conflict, regardless of whether we oppose or support the proposal.
Principle 6. Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
We report on its engagement activities and provides basic policy on stewardship responsibilities through its investment management reports, discussions with clients, various types of seminars, and websites. When describing the state of investment management, we strive to fully disclose proprietary information gained through our bottom-up research approach, as well as our thoughts on corporate value and our efforts to support corporate sustainable growth.
Regarding exercise of our voting rights, we report the results every year on our website.
Principle 7. To contribute positively to the sustainable growth of investee companies, institutional investors should develop the skills and resources needed to appropriately engage with the companies and to make proper judgments in fulfilling their stewardship activities, based on an in-depth knowledge of the investee companies and their business environment, and a consideration of sustainability consistent with their investment management strategies.
In order to gain an in-depth understanding of our investee companies' business and to form a shared awareness with management teams through dialogues, we must have sufficient knowledge and experience, in addition to sophisticated analytical capabilities. That is why, since our establishment, we have made a methodical bottom-up approach be a part of our basic mind-set for research and investment activities, while thoroughly integrating high standards throughout our organization. At the same time, we have trained and educated our personnels so that they can build and deploy their accumulated knowledge and experience throughout the Company. Furthermore, our management team has many years of professional experience at the Company and in the asset management industry. The team shares our investment philosophy and the principles on which we were founded, and it pursues business while striving for the ideal vision expected of the asset management industry. In order for our investee companies to recognize our dialogue as meaningful, we believe that it is necessary to acquire corporate analytical skills not just from a shareholder perspective but also from a total value creation perspective that includes the views of all stakeholders relating to those investees such as management, employees, clients, suppliers, business partners, or local communities. We endeavor to improve our research and analysis abilities on a daily basis accordingly.
We will regularly conduct (approximately once a year) self-assessment of Stewardship Code compliance, including the progress of dialogues with portfolio companies and report the results to the Board of Directors, then disclose it on our website.