JAPAN STEWARDSHIP CODE

The Japan Financial Services Authority (“FSA”) published the “Principles for Responsible Institutional Investors” (the “Japan Stewardship Code” or the “Code”) in February 2014 and issued a revised Code in May 2017. It was produced by the Council of Experts Concerning the Japanese Version of the Stewardship Code. The Council has revised and published a second revision of the Code by adding the 8th Principle in March 2020.

The Japan Stewardship Code seeks to promote sustainable growth of companies through investment and dialogue. Its principles reflect the commitment of institutional investors to engage constructively with invested companies with the aim to enhancing the medium- to long-term investment return for their clients and beneficiaries by improving and fostering the investee’s companies’ corporate value and sustainable growth through constructive engagement, purposeful dialogue and based on in-depth knowledge of the companies and their business environment.

In accordance with the Japan Stewardship Code’s requirements to disclose how Alpha Japan Asset Advisors Ltd (“AJAA”) fulfills its stewardship responsibilities, it outlines here its approach with respect to the eight principles of the Code.

Principle 1: Institutional investors should have a clear policy on how they fulfill stewardship responsibilities, and publicly disclose it.
AJAA’s basic business management principle is to always conduct business faithfully on behalf of its customers. It believes that enhancing the value and the sustainable growth of investee companies is indispensable in order to increase the medium- to long-term investment return of its customers.
AJAA’s Japanese stock management style emphasizes active, bottom-up and fundamentals stock selection, by conducting thorough quantitative analysis and qualitative assessment which include direct dialogues with companies before investment decisions are taken. Corporate interactions and engagement do not stop once investment is made, as AJAA maintains close monitoring, communication and follow-ups with investee companies. AJAA conducts thorough quantitative analysis and qualitative assessment and deliberates medium- to long-term sustainability, including ESG factors, through direct dialogues with companies before investment decisions are taken. It weighs ESG evaluation to lead medium- to long-term return improvement and risk reduction for beneficiaries.
Furthermore, AJAA views the exercise of voting rights as an opportunity to express its intentions to investee companies, as described in its “Basic Policy on Exercise of Voting Rights”.

Principle 2: Institutional investors should have a clear policy on how they manage conflicts of interest to fulfill their stewardship responsibilities, and publicly disclose it.
As a general rule, AJAA does not conduct any transactions for its own account. Furthermore, as a fully independent investment management firm, it does not belong to any corporate group. Its basic policy is to prioritize the interests of its customers and any potential conflicts of interest that may arise between the investment advisory and investment management businesses will be handled in accordance with its internal regulations.

Principle 3: Institutional investors should monitor investee companies so that they can appropriately fulfill their stewardship responsibilities with an orientation toward the sustainable growth of the companies.
AJAA performs thorough quantitative analysis and qualitative assessment to form its proprietary stock price valuation before deciding where to invest its customers’ assets. For this purpose, it actively meets companies, participates in Investor Relations’ meetings and visits facilities such as factories and premises. Also, it utilizes securities reports, and if available, integrated reports, governance reports and documents related to the general meetings of shareholders, which are used in the voting business, to confirm the status of governance. Once investment is made, it continues to monitor and engage with the investee companies and endeavors to grasp their status appropriately through dialogue and all other available means.

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.
AJAA continuously interacts with investee companies. In addition to seeking first-hand information through direct contacts with senior management in the corporate business and finance departments, it will endeavor to engage in dialogues to conveys AJAA’s intentions, with a view to contribute to improving corporate value. AJAA is engaged in both capital efficiency improvement and sustainability. Its engagement also covers issues related to exercising voting rights, increasing awareness of climate change risks, and ESG issues that affect sustainability, such as the penetration of the Sustainable Development Goals (SDGs).  In that regards, AJAA may additionally take actions such as exercising appropriate voting rights when permitted, as well as buying or selling shares.

Principle 5: Institutional investors should have a clear policy on voting and 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.
In principle, AJAA will exercise the voting rights of the investee companies when permitted. The process will be based on its internal guidelines “Basic Policy on Exercise of Voting Rights”, with the primary interest of customers in mind. The results of exercising the voting rights shall be disclosed in accordance with the “Appropriate Exercise of Exercise Instructions for Voting Rights related to Discretionary Investment Contracts” issued by the Japan Investment Advisors Association.
It should be noted however that some of the funds managed by AJAA may be restricted to qualified investors and carry investment policies and objectives aiming at a stable and continuous increase of wealth. The disclosure of the status of voting rights to investee companies may to some extent be detrimental to these objectives. AJAA may therefore refrain from the disclosure when appropriate, unless explicitly requested by investors.

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.
AJAA will report on the status of stewardship activities upon request from investors.

Principle 7: To contribute positively to the sustainable growth of investee companies, institutional investors should develop skills and resources needed to appropriately engage with the companies and to make proper judgment in fulfilling their stewardship activities based on in-depth knowledge of the investee companies and their business environment and consideration of sustainability consistent with their investment management strategies.
AJAA’s investment and research team is composed of experts with extensive knowledge and experience. It will maintain a policy of hiring highly qualified executives and employees with a focus on performance, ethic and business practice.

Principle 8: Service providers for institutional investors should endeavor to contribute to the enhancement of the functions of the entire investment chain by appropriately providing services for institutional investors to fulfill their stewardship responsibilities.
As described in Principle 5, AJAA will exercise the voting rights of the investee companies when permitted. The process will be based on its internal guidelines “Basic Policy on Exercise of Voting Rights”, with the primary interest of customers in mind. When it utilizes service providers for institutional investors, it verifies the suitability of the service provider by fully confirming the voting rights exercise guidelines, its organizational structure and conflict of interest from the perspective of whether the service provider contributes to improving the functions of the entire investment chain.

Basic policy on exercise of voting rights

1. Basic approach to exercising voting rights
The exercise of voting rights has economic value and, according to our fiduciary responsibility, shall be performed for the sole benefit of the customer and not for our own benefit or the one of any third party other than the customer.
For the purpose of maximizing the economic value of the investee companies, voting rights will be exercised when permitted and unless directed not to by the customer. In exercising the voting rights for each agenda, we can either approve, disagree, abstain, or, if appropriate, delegate (sign a power of attorney).

2. Guidelines for voting instructions
In principle, effective voting instructions will be issued in accordance with the standards
set forth below. These standards may be determined flexibly within a reasonable range.
(1) Matters concerning profit appropriation
(2) Matters concerning directors and the board of directors
(3) Matters concerning auditors and the board of auditors
(4) Matters concerning executive remuneration, retirement benefits, etc.
(5) Matters relating to the granting of stock options (stock acquisition rights)
(6) Matters concerning changes in capital
(7) Merger and business transfer matters
(8) Shareholder proposal
(9) With regard to other individual matters, judgment will be made on a case-by-case basis, keeping in mind the best interest of the customer.
Furthermore, in the case of anti-social behavior within an investee company, the voting rights will be determined specifically and individually.

3. Decision-making process for exercising voting rights
In principle, the responsible persons in charge of investment management shall decide on the exercise of voting rights and obtain approval of the in-house Investment Committee.