Adoption of “Japan’s Stewardship Code”

December 4, 2017

JAFCO Co., Ltd. (“JAFCO”) hereby confirms its adoption of the Principles for Responsible Institutional Investors (the Japan’s Stewardship Code; hereinafter the “Code”) as a venture capital company that identifies and provides continuous support for high-potential unlisted companies.

Based on our mission of “Commit ourselves to new business creation and jointly shape the future,” we have established “Co-Founder” as our new corporate identity. We work closely with entrepreneurs from the business concept stage and commit to developing their businesses and enhancing corporate values.

In pursing the mission, we will fulfill “stewardship responsibilities” in the Code, the aim of which is to enhance the medium- to long-term investment returns for clients and beneficiaries by improving and fostering portfolio companies’ corporate values and sustainable growth.

JAFCO’s policies on each principle of the Code are as follows.

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

As an investment fund manager, JAFCO bears a responsibility to maximize returns for its fund investors within the management period of each fund.

Our funds’ investment targets are start-ups and other unlisted companies. Many of these companies have the potential to exploit a new growth market through innovative business models, technology, and products/ services.

Focusing on growth sectors, we identify promising companies and make selective investment based on evaluation from various aspects. We accelerate the growth and development of portfolio companies through deep involvement in management and proactive growth support. By enhancing the corporate value of the portfolio companies and maximizing fund returns, we will fulfill our stewardship responsibilities to our fund investors.

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 a fund manager, JAFCO has the power to perform all operations, including investment decision making. If a conflict of interest may arise, we will take appropriate measures with due consideration to fairness and act in the best interest of our fund investors.

Our policies in addressing possible conflicts of interest include:

JAFCO, in principle, does not make direct investment in companies, but invests its own capital in the funds that it manages. Investment in unlisted companies is carried out through the funds. We avoid the possibility of conflicts of interest by sharing the same interest as our funds. JAFCO, in principle, does not permit transaction between JAFCO and its funds as well as between JAFCO-managed funds.

If such investment or transaction is necessary for a compelling reason, we will ensure fairness among parties involved by taking appropriate steps to the extent permitted by the investment partnership agreements, applicable laws and regulations.

Principle 3
Institutional investors should monitor portfolio companies so that they can appropriately fulfill their stewardship responsibilities with an orientation towards the sustainable growth of the companies.

Principle 4
Institutional investors should seek to arrive at an understanding in common with portfolio companies and work to solve problems through constructive engagement with portfolio companies.

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 portfolio companies.

In illiquid venture capital investment, performance largely depends on the success of corporate value adding through involvement in the management of portfolio companies. It is more apparent than in the case of investment in listed companies.

While many unlisted companies that our funds target have high growth potential, their profit bases are still unstable, internal structures are weak and information disclosure is insufficient. We work to grasp the situation at a portfolio company through day-to-day communication and information sharing with the management team, employees and other parties involved, not to mention attending important meetings at the company.

By deepening sincere and frank dialogue with the management team, we come to share management issues and risks, and work together to solve problems. We also provide business support suitable for different growth stages with the aim of accelerating growth and raising corporate value.

Based on such accumulated dialogue with portfolio companies, we exercise voting rights after ensuring that each proposal from portfolio companies serves in the interest of the funds.

It is our policy not to disclose our voting results, as the majority of our portfolio companies are unlisted companies.

Principle 6
JAFCO reports on fund management status and investee companies’ performance/ outlook to our fund investors by dispatching periodic reports and at the annual meeting. We will make timely reports on our stewardship activities through these occasions.

JAFCO reports on fund management status and portfolio companies’ performance/ outlook to our fund investors by sending periodic reports and at the annual meeting, etc. We will make timely reports on our stewardship activities through these occasions.

Principle 7
To contribute positively to the sustainable growth of portfolio companies, institutional investors should have in-depth knowledge on the portfolio companies and their business environment and capabilities to appropriately engage with the companies and make proper judgments in fulfilling their stewardship activities..

Knowledge and insight into new business/ growth sectors and high-level expertise to allow corporate analysis are required to properly carry out stewardship activities in private equity investment. In addition, in-depth understanding of companies and businesses, strategic initiatives that lead companies to growth, risk management and other extensive capabilities are also essential.

JAFCO’s investment staff work to enhance such capabilities by gaining the experience of deep involvement in management at portfolio companies.

In addition to the investment division, JAFCO has divisions that specialize in due diligence of investment candidates, business development support and administrative consultations. This allows us to carry out broad-ranging investment activity and value adding support.

By sharing and accumulating profound experience and expertise on a company-wide basis, JAFCO will work to build a mechanism for providing more effective growth support.

It is our policy not to disclose our self-evaluation of the implementation status of Japan’s Stewardship Code, as the majority of our portfolio companies are unlisted companies.