Stewardship Code
Rheos Capital Works Inc. (hereinafter referred to as "Rheos Capital Works," "we," or any variations thereof) is an investment management firm which was established in 2003. Rheos Capital Works is a Japan-based financial instrument business operator and is a member of the Investment Trusts Association, Japan, and the Japan Investment Advisors Association.
Rheos Capital Works accepts the Principles for Responsible Institutional Investors (Japan's Stewardship Code). Our conduct policies are also outlined below. (Revised on September 16, 2020)
Stewardship Code
Following the discussions of the Industrial Competitiveness Council under the auspices of the Headquarters for Japan's Economic Revitalization, and as instructed by the Prime Minister (in his role as the chief of the Headquarters), the Cabinet approved in 2013 the Japan Revitalization Strategy, which states that "with the aim of promoting the sustainable growth of companies, principles for a wide range of institutional investors to appropriately discharge their stewardship responsibilities" should be discussed and drafted. The Financial Services Agency established the Japanese Version of the Stewardship Code based on the discussions of the Council of Experts Concerning the Japanese Version of the Stewardship Code. Following the revision in 2017, a Code comprising eight principles was formulated in March 2020 as shown below.
Institutional investors should have clear policies on how they fulfill their stewardship responsibilities, and publicly disclose those policies.
We believe that constructive dialogue and engagement with companies, based on the principles of Japan's Stewardship Code, fosters those companies' medium- to long-term growth, as well as enhances the returns on investments for our clients and beneficiaries. We will invest the funds our clients have entrusted to us in the equity markets as asset managers acting in accordance with Japan's Stewardship Code. We will invest the important funds entrusted to us by our clients with an eye to realizing a better world in consideration of the various activities businesses may be involved in.
Institutional investors should have clear policies on how they manage conflicts of interest when going about fulfilling their stewardship responsibilities and should publicly disclose those policies.
We adhere to internal guidelines so as to appropriately manage any transactions which may potentially present conflicts of interest so that there interests of our clients and beneficiaries will not be unduly harmed. Additionally, operational procedures based on this Principle are routinely monitored by a Fiduciary Duty Committee (hereinafter referred to as the "FD Committee") with the majority of its members being outside experts.
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 in question.
Comprehensive, continuous and ingenious proprietary research and monitoring of investee companies is essential to our investment and management process. In order for our investment and management process to be effective and to go about meeting this Principle, our investment professionals will accurately grasp the condition of a company and be closely attuned to any changes which have occurred by proactively visiting investee companies to interview management and by taking other such courses of action.
Institutional investors should seek to arrive at a common understanding with investee companies and work to solve problems through constructive engagement with investee companies.
We believe that respectful and constructive dialogue with investee companies fosters the sustained growth of those companies and serves to enhance returns on investment for our clients and beneficiaries. Through our investment and research activities, which are conducted based on purposeful dialogue, we strive not only to have a positive impact on the growth of investee companies but also to yield beneficial results for society.
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 also be designed to contribute to the sustainable growth of investee companies.
We exercise proxy voting rights in accordance with internal regulations. While we do disclose proxy voting results, we disclose individual results solely in the cases involving 'votes against' something, votes which present potential conflicts of interest, or votes deemed important in the context of constructive dialogue undertaken with investee companies for the reasons noted below. These individual results are disclosed at the end of the year en bloc (after a period of six months or more has passed).
1) In reflection of our basic investment stance to entrust the management of a business to the executive team of investee companies, the percentage of 'supporting votes' has been close to 100%. As such, we feel the necessity for the disclosure of company-specific voting records on an individual agenda item basis is very limited.
2) Although we view the exercising of proxy voting rights as an important means of undertaking dialogue with investee companies, we place greater value on engagement based on dialogue conducted daily. We will indicate our opposition by means of the sale of shares or other such means if we are not in agreement with the management policies of an investee company.
3) Disclosure of company-specific voting records on an individual agenda item basis will allow our portfolio position (of our main investment products "Hifumi Fund," "Hifumi Plus," and "Hifumi Nenkin") to be speculated, which may potentially harm the interests of our beneficiaries. Therefore, our policy on disclosure of voting activity is as indicated above.
Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
We publish our Proxy Voting Guidelines and our proxy voting results (regarding companies whose annual shareholder meetings are held in May and June of each year) on our web site. Furthermore, we will disclose individual results solely in the case of 'votes against' something, votes which present a potential conflict of interest, or votes deemed important in the context of constructive dialogue undertaken with investee companies, as mentioned in Principle 5. These individual results are disclosed at the end of the year en bloc (after a period of six months or more has passed).
To contribute in a positive manner to the sustainable growth of investee companies, institutional investors should have in-depth knowledge of the investee companies and their business environment and skills, as well as the resources needed to appropriately engage with the companies and subsequently make proper judgments in fulfilling their stewardship activities.
Our proprietary research and investment process is designed in a manner which allows our associates to gain insight, knowledge and experience. This process is repeated daily so that we may collectively attain the skills necessary to undertake creative and constructive dialogue with companies. In order to accelerate learning and further elevate our levels of insight and knowledge, we also maintain environments which serve to encourage our associates to have frequent discussions with senior fund managers. Additionally, operational procedures based on this Principle are routinely monitored by a Fiduciary Duty Committee (hereinafter referred to as the "FD Committee") with the majority of its members being outside experts.
Service providers for institutional investors should endeavor to help enhance the functions of the entire investment chain by appropriately providing services for institutional investors to fulfill their stewardship responsibilities.
As of September 2020, we have not used the services of proxy advisors or other service providers. However, if we do use such services in the future, the selection of service providers shall include assessments of whether or not they systematically guard against conflicts of interest and have sufficient research and advisory capabilities in relation to the assets held in our Investment Portfolios.