Institutional Investor Interviews
Investor's Voice
Investor's Voice is a series of video interviews featuring dialogues between the Tokyo Stock Exchange and institutional investors, with the aim of deepening understanding of the Japanese equity market and institutional investors in Japan and overseas. Additional videos will be added sequentially.
Sumitomo Mitsui DS Asset Management
Appraisal of Japanese Companies and Future Expectations - Part 1
- Sumitomo Mitsui DS Asset Management manages over JPY 27 trillion in assets and uses a boutique-style approach with about 40 fund managers
- The uptrend in Japanese equities is expected to continue, supported by both corporate earnings and supply-demand dynamics
- In Japan, alongside the economy’s exit from deflation, companies are making progress in enhancing capital efficiency and expanding growth investment
- Share buybacks, MBOs, TOBs, net buying by companies, and inflows from overseas investors are supporting the market
Appraisal of Japanese Companies and Future Expectations - Part 2
- Many companies have been revising their business portfolios and increasing shareholder returns, but further optimization and M&As are crucial for enhancing profitability
- When attractive investment opportunities are scarce, companies should consider returning excess cash to shareholders through dividends or share buybacks
- Compensation committees should draw on external expertise and prioritize designing remuneration systems that enhance corporate value and align with investor expectations
- Skills matrices should clearly explain why each skill is required and avoid superficial box-ticking disclosure
Stewardship Activities
- SMDAM votes against directors when ROE remains below the higher of the market median or 8% for three consecutive years, and it has also tightened its standards on governance, diversity, and other areas
- Sustained growth in corporate value requires not only shareholder returns but also investment in future growth
- Questions about current performance are not motivated by a focus on short-term considerations. Such questions are asked to assess how new information affects the long-term outlook
Effective Techniques for Engagement
- TSE case study collections are useful because they can be used in place of case studies that are difficult to share externally
- Successful engagement tends to have three common features: it is sustained over the long term, features dialogue across multiple levels, and involves coordination within the investor organization
- Pre-AGM engagement helps investors understand company-specific circumstances, enabling voting decisions that are not purely mechanical
- Investors should convey clear messages through engagement, voting policies, support for shareholder proposals, and other means
Wellington Management
Investment and Stewardship Policy
- Wellington’s multi-boutique investment approach centered on research and analysis
- Rising expectations regarding business strategy, compensation structures, and profitability are leading to more focused proxy voting that is better aligned with each company’s specific circumstances
- How can Japanese companies improve the usability of their disclosures to make them easier for investors to use?
Effective Engagement Techniques
- Using TSE case study collections to build a common language between companies and investors and deepen understanding of broader market expectations and demands
- A case study of driving change at a major Japanese non-life insurer through proxy voting and formal engagement letters
- How to distinguish between companies that are genuinely trying to reform and those that are simply buying time
Appraisal of Japanese Companies and Future Expectations
- Four key principles for establishing an outstanding capital allocation framework
- What truly needs to be changed through governance reform
- Boards should be evaluated based on the results they deliver, not on their composition
Tokio Marine Asset Management
Investment and Stewardship Policy
- Strengthening corporate governance is like insurance against the risk that crises become the norm
- To enhance corporate value, companies should not aim for perfection from the outset, but instead start with initiatives that have gained internal understanding and support
- The importance of setting the same KPIs internally as those disclosed to investors
Effective Engagement Techniques
- A case study showing companies how investors accurately value real estate, using TSE case study collections
- A case study of how a generational change in management helped one company break out of the status quo
- Why Japanese institutional investors prefer a "sheep pack" engagement approach to a “wolf pack” approach
Appraisal of Japanese Companies and Future Expectations
- The need to begin reforms to the “stock” side of capital structure, after achieving a certain degree of improvement in “flow”-related aspects such as shareholder returns
- The importance of maintaining strict investment discipline while pursuing growth investments
- Why it is becoming increasingly necessary for boards of directors to understand capital markets, even when management consists of highly capable sales professionals
Nippon Life Insurance Company
Investment and Stewardship Policy
- Voting guidelines used for selecting companies to engage with
- The aspects of sustainability that Nippon Life prioritizes in its dialogue with companies
- The importance of integrated reports and sustainability disclosure
Effective Techniques for Engagement
- A case study of achieving change through engagement with a major broadcasting company
- The importance of companies themselves recognizing the need for change and taking the initiative in pursuing improvement
- Managing engagement progress using Nippon Life’s proprietary “Issue Resolution Rate”
Appraisal of Japanese Companies and Future Expectations
- Thinking about capital allocation not in terms of growth investment versus shareholder returns, but instead in terms of maximizing long-term corporate value
- Ongoing challenges such as aligning incentives through appropriate compensation systems, selecting comparator companies, and linking compensation to KPIs
- The importance of training board members and executives, including in governance and finance
Norges Bank Investment Management (NBIM)
Investment and Stewardship Policy
- NBIM’s role as manager of one of the world’s largest pension funds and its approach to investment
- Criteria for selecting engagement targets
- Where Japan leads in disclosure and where it still needs to improve
Effective Techniques for Engagement
- What kinds of corporate initiatives demonstrate that the board is exercising effective oversight?
- Understanding companies’ capital allocation thinking and intentions through dialogue, and assessing their validity
- The importance of allowing sufficient time for the results of dialogue to emerge
Appraisal of Japanese Companies and Future Expectations
- The need for further improvement in areas such as succession planning, the independence of nomination committees, and the transparency of director selection processes
- What an appropriate incentive structure for management should look like
- The importance of going beyond box-ticking skills matrices and disclosing directors’ professional experience and expertise
