ASSET MANAGEMENT

Sumitomo Mitsui Trust Bank (SuMi TRUST)

SuMi TRUST is one of the largest asset managers in Japan, with AUM of USD 453 billion (as of 31st March 2015). Trust banks are major players in asset management industry in Japan, and SuMi TRUST is one of them. Total AUM of Sumitomo Mitsui Trust group including two dedicated asset management firms is USD 664 billion.

SuMi TRUST manages a broad spectrum of Japanese Equity products and is well known in Japan as a principal provider of Japanese equity products for corporate and governmental pension funds.

Japanese Equity is the central component of our business with AUM of USD 115 billion (as of 31st March 2015) representing a substantial revenue stream for the Group as a whole. Out of USD 115 billion mentioned above, USD 19 billion is for active management.

SuMi TRUST also provide products investing in Asian equities. The capability was developed through its experience in Japanese equity, although it maintains investment team in Hong Kong.

Facts and Figures

  • One of the largest asset managers in Japan with AUM of USD 453 billion (as of 31st March 2015). Total AUM of Sumitomo Mitsui Trust group including two dedicated asset management firms is USD 664 billion.
  • Actively managing equity funds since the introduction of corporate pension regulations in 1962.
  • A strong presence in Japan with 24 dedicated analysts with average experience of 16 years. (as of 31st March 2015)

Organizational Chart

(As of April 1, 2015)

Investment management industry in Japan and Trust Bank

The structure of Japanese financial industry is unique. Trust banks practice investment management business and it is one of their major lines of business. In some of the major countries, banks are recognized as a different industry from investment management, but this concept does not apply to Japan. Historically, the only financial institutions authorized to manage corporate pension before 1997 were trust banks and life insurance companies. Trust banks’ consistent dedication to professional skills as well as relationship with investors has kept them as major players in asset management business in Japan.

SuMi TRUST - Sumitomo Mitsui Trust Group

Sumitomo Mitsui Trust Bank and other affiliated companies form Sumitomo Mitsui Trust Group. Other member firms engaged in investment business in the Group include the following.

Sumitomo Mitsui Trust International Limited

A wholly owned subsidiary of SuMi TRUST located in London. It provides investment products to overseas investors and securities lending service mainly for Japanese and European equities.

Sumitomo Mitsui Trust (Hong Kong) Limited

A wholly owned subsidiary of SuMi TRUST located in Hong Kong. It conducts securities investment and investment advisory business such as advisory for private equity fund investments.

Sumitomo Mitsui Trust Asset Management

A wholly owned subsidiary of SuMi TRUST located in Tokyo. It provides investment products to Japanese retail investors mainly through commercial banks and brokers.

Global Network

(As of March 31, 2013)

PRODUCTS

SuMi TRUST offers a comprehensive Japanese as well as Asian product suite to clients.

Japanese equity products include value, growth, as well as market neutral strategy. All the important investment decisions for Japanese equity products are made in Japan, based on the research and analysis conducted locally in Japan. Market neutral strategy of Japanese equity employs widely used Cayman fund structure and is managed through our Hong Kong subsidiary.

We also provide products investing in Asian equities. The capability was developed through the experience in Japanese equity. Our Hong Kong subsidiary has an investment team dedicated to Asian equity investment.

Note: The diagram shows relative risk return relation among each product. The diagram does not guarantee the future return of the products. Please refer to detailed information of each product when making investment decision.

Japan Small Cap Strategy: JSC

The strategy is based on our belief that the Small Cap Sector of the Japanese stock market can provide excellent opportunity for consistent uncorrelated high returns. Managers seek to identify stocks with true upside potential that are overlooked or undervalued by the market.

*The strategy is also available in UCITS.

Japan Fundamental Growth Strategy High Alpha: JFG High Alpha

A strategy distilling the best of our non-consensus high conviction ideas. The strategy taps into a concentrated high conviction stock selection process based upon our significant research group located in Japan. The portfolio is constructed typically with 30-50 stocks.

Japan Fundamental Growth Strategy: JFG

A bottom-up fundamental research intensive strategy providing a high-conviction portfolio of mid to large-cap growth stocks. Managers and analysts seek undiscounted growth and invest to take best advantage. The domestic version of the strategy is a fund widely bought and held by Japanese pension funds. The portfolio is constructed typically with 60-90 stocks.

Japan Fundamental Value Satellite Strategy: JFVS

A value strategy focusing on the Free Cash Flow valuation and the consensus gap detected by our detailed research. The team invests in undervalued stocks which have high probability of earnings surprise potential.

*The strategy is also available in UCITS.

Japan Index: JI

Replicates index subject to any additional investor criteria (such as high credit risk screening).

Japan Long-Short Strategy: JLS

A strategy generating consistent alpha by forecasting earnings surprise on a market neutral basis. The strategy takes positions in 50-70 pairs of stocks, one short, one long where a consistent spread is generally anticipated by the market. This is a research driven strategy which additionally requires a deep understanding of the characteristics of the market. This can be used in conjunction with portable alpha strategies or passive exposure.

Investment products for non-Japanese investors provided through our London subsidiary, Sumitomo Mitsui Trust International.

Purpose of Exercising Voting Rights

Sumitomo Mitsui Trust Bank, Limited (“SuMi TRUST,” “we,” “us,” or “our”), as a “responsible institutional investor,” considers our exercise of voting rights in connection with entrusted assets (the term “exercise of voting rights” is used in the same sense below) to be one of the most important elements of our stewardship activities, and we will strive to ensure that our exercise of voting rights enhances the corporate value and encourages sustainable growth of investee companies, in order to maximize medium to long-term investment returns for our clients (beneficiaries).

Basic Policy on the Exercise of Voting Rights

  • 1.
    Our exercise of voting rights must intend to contribute to a sustainable growth of investee companies thereby maximizing medium to long-term investment returns for our clients (beneficiaries). Based on investee companies’ conditions and details of engagements with those companies, we will exercise voting rights not only pursuant to the formal criteria for decision making, but after comprehensively considering the extent to which our exercise of voting rights would contribute to sustainable growth of investee companies (and to maximization of medium to long-term investment returns for our clients (beneficiaries)). Furthermore, if a proposal has several interchangeable options, we will make our decision to exercise the voting rights by prioritizing the option that would contribute most to sustainable growth.
  • 2.
    In exercising voting rights, we will encourage investee companies to actively develop appropriate corporate governance systems that respect the interests of shareholders by efficiently utilizing the shareholders’ equity towards sustainable growth and ensuring separation of management supervisory functions and independence of outside officers, among others. In addition, we will encourage the investee companies to conduct corporate activities appropriately by fully considering the environment and the society under the soundly developed corporate governance systems.
  • 3.
    If any act that disregards the interests of shareholders, misconduct or anti-social behavior by an investee company or its management occurs, or its corporate value is damaged due to problems such as poor medium to long-term performance, we will consider such act as a serious issue in the investee company’s corporate governance, and we will exercise voting rights in a way that would improve the investee company’s corporate governance. We require investee companies that have engaged in anti-social behavior to provide a full explanation of the recurrence prevention measures, progress of improvement measures, and efforts towards improvement of its corporate governance, and we will arrive at a decision on the exercise of voting rights based on the explanations.

Management of Conflicts of Interest in the Exercise of Voting Rights

  • 1.
    With the view of prioritizing the interests of clients (beneficiaries), we strictly manage conflicts of interest that could arise in connection with our exercise of voting rights in accordance with the Conflict of Interest Management Rules, the Investment Operation Rules, and other relevant internal rules. Since conflict-of-interest management systems must be independent in particular when exercising voting rights, we have established the “Stewardship Activity Advisory Committee” (the “Advisory Committee”) mainly consisting of outside experts, and we will strive to exercise voting rights with high transparency by respecting the Advisory Committee’s recommendations.
  • 2.
    In order to enhance the visibility of appropriateness of our exercise of voting rights, we will improve the disclosure of information regarding our exercise of voting rights by publishing guidelines for the exercise of voting rights that contain clearly defined criteria to guide decision making or the like.

Structure for the Exercise of Voting Rights

  • 1.
    At SuMi TRUST, the Officer in charge of the Fiduciary Services Business exclusively holds all authority relating to our exercise of voting rights, independent from the authority to execute other business activities. In addition, in order for the Officer in charge of the Fiduciary Services Business to appropriately exercise voting rights, we have established the Stewardship Meeting that deliberates on our exercise of voting rights, and we have established the Advisory Committee as an advisory body for the Officer in charge of the Fiduciary Services Business.
  • 2.
    The Stewardship Meeting is a meeting to deliberate on our exercise of voting rights, engagements, ESG-related activities and various other activities under the Stewardship Code of Japan. In relation to our exercise of voting rights, the Stewardship Meeting will formulate original plans for the establishment, revision, or abolition of the guidelines for exercise of voting rights and original plans to individually exercise voting rights for a proposal not stipulated in the guidelines. The Stewardship Meeting will consist of the chair (General Manager of the Stewardship Development Department), members (General Managers of the Equity Investment Department, the Investment Research Department, and the Index Investment Department), the monitoring unit (General Manager of the Fiduciary Risk Management Department), and the secretariat (the Stewardship Development Department).
  • 3.
    The Advisory Committee is a body established to make recommendations for various activities under the Stewardship Code of Japan to the Officer in charge of the Fiduciary Services Business. Regarding our exercise of voting rights, the committee will make recommendations for the establishment, revision, or abolition of the guidelines for the exercise of voting rights, decisions concerning whether to support a proposal not stipulated in these guidelines, appropriateness of interpretation of these guidelines for an individual proposal, and verification and improvement of the decision-making process on the exercise of voting rights on a proposal in connection with which a conflict of interest may occur. The committee will consist of outside advisory members (outside experts) and the General Manager of the Stewardship Development Department as a member, the monitoring unit (General Manager of the Fiduciary Risk Management Department), and the secretariat (the Stewardship Development Department).
  • 4.
    The Officer in charge of the Fiduciary Services Business will make decisions on various matters that, to the maximum extent, respect the Advisory Committee’s recommendations. If the officer receives a recommendation from the Advisory Committee regarding improvement of its exercise of voting rights, the officer will promptly take measures necessary for the correction or improvement that, to the maximum extent, respect the recommendation.
  • 5.
    The operations relating to our exercise of voting rights will be performed as follows:
    • (1)
      the guidelines for exercise of voting rights shall be established, revised, or abolished with the approval of the Officer in charge of the Fiduciary Services Business after deliberating at the Stewardship Meeting and after obtaining recommendations from the Advisory Committee;
    • (2)
      a decision to exercise the voting rights for an individual proposal within the scope stipulated in the guidelines for the exercise of voting rights shall be made with the approval of the General Manager of the Stewardship Development Department;
    • (3)
      a decision to exercise the voting rights regarding a proposal that is not stipulated in the guidelines for the exercise of voting rights and that requires individual deliberation shall be made with the approval of the Officer in charge of the Fiduciary Services Business after individual deliberation at the Stewardship Meeting and after obtaining the recommendations from the Advisory Committee; and
    • (4)
      the result of exercising the voting rights shall be reported to the Stewardship Meeting and the Officer in charge of the Fiduciary Services Business.

Japan’s Stewardship Code – Guidelines

Based on the revised Japan’s Stewardship Code (hereunder, the Code) which was published in March 2020, Sumitomo Mitsui Trust Bank, Ltd. (hereunder, the Bank) revised our “Guidelines on Stewardship Responsibilities” and “Guidelines on the Principles of Japan’s Stewardship Code”. As one of Japan’s premier institutional investors, we will fulfill our stewardship responsibilities.

Sumitomo Mitsui Trust Group, Inc., the parent company of the Bank, has established the ‘Policies regarding the Fiduciary Duties of the Sumitomo Mitsui Trust Group’ as its policies for “client-oriented” initiatives. The parent company has committed to enhance the corporate governance structure as it shifted to a company that includes a nominating committee, and to effectively fulfill our stewardship responsibility.

“Guidelines on the Principles of Japan’s Stewardship Code”

Principle 1: Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.

We will fulfill our stewardship responsibilities under the “Guidelines on Stewardship Responsibilities.

  • We have a stewardship responsibility over our assets under management. In order to fulfill the stewardship responsibilities, we will require our external asset managers to enhance the value and growth of the investee company by gaining a deep understanding of the company and its business environment and also considering sustainability on their business through engagement and the exercise of voting rights, and maximize the medium to long-term return on investments for our clients (beneficiaries).
  • We will require our external managers to control adequate resources to conduct analyses of financial statements, social and environmental issues, and non-financial information such as ESG activities including corporate governance, and participate in meaningful engagement meetings and the exercise of voting rights” with regards to assets under management.
  • As one of Japan’s premier institutional investors, we believe that our stewardship responsibility is a social responsibility that contributes to the economic growth of Japan by fulfilling our stewardship responsibilities.

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.

As part of our stewardship responsibility, we will appropriately manage conflicts of interest under our “Conflict of Interest Management Guidelines” and “The Enhancement of the Conflict of Interest Management Structure relating to the Asset Management Operation”.Also, we will require our external asset managers to have clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it

  • Under our mission of “establishing trust by practicing sound management based on a high level of self-discipline and our fiduciary spirit”, we will further advance our conflict of interest management structure for the entire group and thoroughly implement our fiduciary duties across all business lines.
  • On conflicts of interest arising from stewardship activities, we place our clients’ (beneficiaries’) interest first, and adhere to strict management practice under our internal conflict of interest management provisions, provisions on conflicts of interest in the fiduciary business, and regulations and guidelines on asset management. In addition, we have already disclosed the outline of policies defined in provisions on conflicts of interest in the fiduciary business.And we will require our external asset managers to disclose how they manage conflicts of interest in fulfilling their stewardship responsibilities.
  • At the Bank, the Officer in charge of the Fiduciary Services Business exclusively holds all authority relating to our exercise of voting rights, independent from the authority to execute other business activities. We have excluded the exercise of influence, which may arise when exercising voting rights, as a conflict of interest in the Fiduciary Services Business.

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.

In order to fulfill our stewardship responsibility by ensuring sustainable growth of the investee company, we will require our external managers to monitor and grasp the status of the investee company.

  • We believe that it is important to evaluate investee companies from a mid to long term standpoint. Thus we will require our external managers to accurately grasp and understand the company financials, ESG-related information, effectiveness of management, business foundation, market trends, effectiveness of the business strategy, and non-financial information relating to sustainable growth. By their continuously monitoring and researching the investee company, we can effectively grasp the situation that it is placed under.
  • In addition, we will require our external managers to endeavor to identify at an early stage, issues that may result in a material loss in the value of investee companies by conducting research on environmental and regulatory changes, and make every effort to avoid scandals, accounting fraud other credit risk events.

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.

We will require our external managers to share and recognize common views with investee companies and resolve issues through constructive engagement.

  • We will require our external managers to endeavor to reach a common understanding with the investee company to enhance its sustainable growth through regular, continuous engagement with management, planning and finance officers. Also, we will require our external managers to explain the number of shares we have to the investee company if it is needed.
  • If any act that disregards the interests of shareholders, misconduct or anti-social behavior by an investee company or its management occurs, or its corporate value is damaged due to problems such as poor medium to long-term performance, we will consider such act as a serious issue in the investee company’s corporate governance, and we will require our external managers to exercise voting rights in a way that would improve the investee company’s corporate governance. We will require our external managers to request investee companies that have engaged in anti-social behavior to provide a full explanation of the recurrence prevention measures, progress of improvement measures, and efforts towards improvement of its corporate governance, and we will arrive at a decision on the exercise of voting rights based on the explanations.
  • Analysis of non-financial information is necessary for effective engagement. We believe that effective non-financial information analytical capabilities will lead to a more productive engagement. We will require our external managers to fulfill stewardship responsibilities by solving problems through a highly effective dialogue, and by appropriate exercise of our voting rights.
  • In principle, we will require our external managers to engage in an independent dialogue with investee companies. However, if it leads more beneficial result, other institutional investors should be invited to the meeting for effective engagement.
  • We are mindful to require our external managers not to obtain any material or insider information during our dialogue with investee companies. However, if we receive such information, or where there are risks of exposure, we will abide by our internal guidelines and procedures accordingly.
  • We will require our external managers to consider the mid- to long-term enterprise value of the investee companies when they conduct engagement activities on sustainability matters.

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 sustainable growth of investee companies.

As an institutional investor whose goal is the sustainable growth of the investee company, we will require our external managers to exercise our voting rights through “Sumitomo Mitsui Trust Bank’s Basic Policy on the Exercise of Voting Rights”, and publicly disclose the results of all voting records for all investee companies and how we voted on each issue for each company every quarter

  • As a “responsible institutional investor”, we consider the exercise of voting rights an important part of our stewardship activity.
  • Our exercise of voting rights must intend to contribute to a sustainable growth of investee companies thereby maximizing medium to long-term investment returns for our clients (beneficiaries). Based on investee companies’ conditions and details of engagements with those companies, we will require our external managers to exercise voting rights not only pursuant to the formal criteria for decision making, but after comprehensively considering the extent to which our exercise of voting rights would contribute to sustainable growth of investee companies (and to maximization of medium to long-term investment returns for our clients (beneficiaries)) Furthermore, if a proposal has several interchangeable options, we will require our external managers to make our decision to exercise the voting rights by prioritizing the option that would contribute most to sustainable growth.
  • We will require our external managers to publicly disclose how we voted on each issue for each company every quarter by explicitly indicating the relationship with us based on objective information intended for all investee companies. As always, we make public disclosures through our website by adding the results of all investee companies every quarter. We will require our external managers to disclose the reason why they make the decision on an issue which might have the conflict of interests.
  • As a general rule, we do not receive advisory services from proxy advisory companies. However, if our external managers we exercise voting rights for its treasury shares (shares in Sumitomo Mitsui Trust Group, Inc.), we will require them to exercise voting rights by obtaining advice from an external expert research service organization based on these guidelines to exercise the voting rights. When our external managers receive such services, we require them to disclose the name of companies/organization and how to use the services.
  • On stock lending transactions, we set a lending limit when obtaining voting rights.

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.

In order to fulfill our stewardship responsibilities, we will periodically report to our clients.

  • As part of our stewardship responsibilities, we will require our external managers to make periodic reports via our website and other means, on our voting records, dialogue with investees.We will maintain all records of our votes. On the reporting format and contents, we will discuss our clients’ (beneficiaries’) requirements and make appropriate changes.

Principle 7 - To contribute positively to the sustainable growth of investee companies, institutional investors should have in-depth knowledge of the investee companies and their business environment, consideration for sustainability on their business and skills and resources needed to appropriately engage with the companies and make proper judgments in fulfilling their stewardship activities.

To make dialogue with investee companies constructive and beneficial, and to contribute to the sustainable growth of the companies, we will develop skills and resources needed to appropriately engage with investee companies and to make proper judgments based on in-depth knowledge of the companies and their business environment and consideration for sustainability on their business

  • We will require our external managers to fulfill our stewardship responsibilities through constructive dialogue with investee companies in order to achieve sustainable growth. For this, we believe that skills and knowledge required for appropriate stewardship activities are important. We believe that the management of investee companies should have adequate competence and experience. To fulfill our stewardship responsibility, we will continue to commit to the advancement of our capabilities. The management of our company understands that it has an important role to perform in constructing the appropriate organizational structure and training its staff. The Officer of the Fiduciary Services Business will make every effort in this respect. We also require our external managers to maintain and enhance their organizational structure and training its staff to fulfill the stewardship responsibilities.
  • We believe that it is vital as a fiduciary to improve our stewardship activities and enhance our corporate governance structure and manage conflicts of interest. As “a responsible institutional investor who will comply with stewardship responsibility”, we will require our external managers to periodically review and evaluate our activities and adherence to the principles of the Code, and publicly disclose our evaluation in order to promote visibility.

Principle 8 - A company that provides financial service to institutional investors should support clients to fulfil their stewardship responsibilities and play a key role in the investment community.

If we provide financial service such as proxy advice to institutional investors, we will support clients to fulfill their stewardship responsibilities and endeavor to play a key role in the investment community.

  • If we provide financial services to institutional investors, we will define the case that might have the conflicts of interest and disclose how to manage it.
  • If we provide proxy advice to institutional investors, we will maintain sufficient and appropriate organizational structure and disclose it and implement a conflict of interest policy in order to give assurance about the accuracy and reliability of our advice.

Stewardship Activities

As a responsible institutional investor, we shall conduct stewardship activities, including engagement and proxy voting, with a view to enhance mid to long term corporate value. Through our stewardship activities, we will enhance the medium to long-term investment returns for clients and beneficiaries. Moreover we shall conduct our activities with strong consideration for environmental, social, and governance (ESG) matters which are referred in international initiatives such as Principles for Responsible Investment (PRI) and the United Nations Global Compact to which we are a signatory.

Engagement Guidelines at SuMi TRUST

In accordance with Principles 3 and 4 of the Code, we will comply with the guidelines below and engage with companies as part of our stewardship activities. The revision or abolition of this guideline will be implemented after a final decision made by the Officer in charge of Fiduciary Services Business.

  • (1)
    We, as a responsible institutional investor, shall engage with companies with the view to enhance corporate values and encourage sustainable growth subject to “Japan’s Stewardship Code” to which we have announced our commitment, in order to enhance long term investment returns for our beneficiaries and clients.
  • (2)
    The targeted companies are investee companies that are in our investment portfolio. Based on analysis including corporate strategy, business performance, capital structure and risk (including social and environmental risk), we will engage with companies that offer potential for higher corporate value and sustainable growth.
  • (3)
    As it is imperative to understand the exact nature of the situation and status, we shall make every effort to study and understand the governance, capital structure, business strategy and risk management of companies prior to any engagement.
  • (4)
    We are mindful not to obtain any material or insider information. Where there are risks of exposure, we will abide by our internal guidelines and procedures accordingly.
  • (5)
    We shall engage primarily with company management. Through an all-encompassing engagement process, we shall build trust and share our views on issues concerned.
  • (6)
    Comments made to companies by SuMi Trust during engagement shall be conductive to improvement in corporate value and must not be deemed as “acts of making an important proposal” as defined in the Financial Instruments and Exchange Law.
  • (7)
    All comments made by both SuMi TRUST and the company shall be briefly and transparently documented. Furthermore, we shall monitor through publicly available information, the effectiveness of engagements by subsequent corporate actions taken.
  • (8)
    Engagement activities shall initially be reported to the “Stewardship Engagement Committee” and shall be appropriately reported to beneficiaries and clients.