Horizon’s Compliance with Japan’s Stewardship Code
Horizon Capital Management S.A. is an investment management firm engaged in management of assets by investing globally, including Japanese equities. Horizon Capital Management hereby supports the spirit of, and confirms its intent to comply with the “Principles for Responsible Institutional Investors Japan’s Stewardship Code to promote sustainable growth of companies through investment and dialogue -” as published by the Financial Services Agency (revised version released on May 29, 2017).
The principles of the code are:
1. Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.
2. Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
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.
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.
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.
6. Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
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 and skills and resources needed to appropriately engage with the companies and make proper judgments in fulfilling their stewardship activities.
The following is an outline of how Horizon applies the Code in its engagement with Japanese equity issuers.
Principle 1. Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.
This policy is published so that investors and investee companies are aware of the way in which Horizon integrates stewardship activities into its investment process. Horizon has outlined in this statement each of the principles of the Code and how it complies with them or explains why it does not.
Contacts and meetings with investee companies is primarily the responsibility of the team of analyst and the portfolio manager, in order to create a constructive dialogue with the aim of enhancing the companies’ medium-to long-term value and capital efficiency, and promoting their sustainable growth and long-term value. Horizon proxy voting procedures and record-keeping are overseen by the investment team. Horizon’s Compliance team also carry out a quarterly review of the proxy voting log and follow up where necessary.
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.
Horizon maintains a robust policy on managing conflicts of interest which is designed to ensure its decisions are taken wholly in the interest of its clients. Horizon aims to ensure that all potential and actual conflicts are identified, evaluated, managed, monitored and recorded.
As part of this policy, all members of staff must notify Horizon’s Chief Compliance Officer (CCO) if they become aware of any material conflict of interest arising, including in relation to voting proxies on behalf of clients. Where such a material conflict of interest is identified, voting instructions will be subject to assessment and approval by the CCO.
Our principal objectives when considering matters such as engagement and voting are always to act in the best interests of our clients and to treat them fairly.
Our policy on managing conflicts of interest is disclosed publicly on our website.
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.
Comprehensive and continuous research and monitoring of investee companies is fundamental to Horizon’s investment process. Horizon utilizes various research and support tools to meet this principle. Monitoring includes meeting with senior management of the investee companies, analyzing annual reports and financial statements, and attending company meetings. The effectiveness of such monitoring is under constant review.
Horizon endeavors to identify problems at an early stage to minimize any loss of shareholder value. If investment teams have concerns, where appropriate, they will use their best efforts to ensure that the appropriate members of the investee company’s board are made aware of them. Such concerns may include, among other things, corporate governance issues where we believe they have an impact on shareholder value. However, in seeking to act in the best interests of its clients, Horizon may also consider it better to reduce or eliminate an investment rather than to continue such dialogue.
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.
As part of Horizon investment strategy, it seeks to build effective relationships with boards and management at the companies in which it invests. As part of the research and monitoring process, Horizon may look to intervene by holding meetings with management and/or directors to express Horizon’s concerns or express its views through other channels. Should concerns persist, Horizon will consider, on a case by case basis, whether to intervene jointly with other institutions but will only do so where this is considered appropriate and in the best interests of its clients.
In general, Horizon is unlikely to make public statements, or submit requisitions for EGM. Horizon typically believes that any escalation is best carried out on a confidential basis.
If Horizon needs to receive information on undisclosed material facts due to a special relationship with an investee company, Horizon will first take necessary steps to secure compliance with insider trading regulations, such as the suspension of trade of the company’s stocks, before having a dialogue with the company.
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.
Horizon´s policy is that proxy voting decisions are made in what Horizon believes to be the best long-term economic interests of Horizon’ investors, and not in the interests of any other party or in Horizon’ corporate interests.
Horizon, as a long-term investor, understands that the long term economic interest of its investors matches the long term economic interest of the investee companies. Horizon will vote with the intention to contribute to sustainable growth and long-term value of the investee companies.
Horizon reviews corporate governance issues and proxy voting matters that are presented for shareholder vote by either management or shareholders of public companies.
Horizon will assess what is in the best interests of its investors and, in doing so, may take into account a variety of factors, including:
- Whether the proposal was recommended by management;
- Whether the proposal acts to entrench existing management;
- Whether the proposal fairly compensates management for past and future performance; and
- Whether the proposal is likely to increase sustainable growth and long-term shareholder value.
Horizon does not publicly disclose voting records as it considers that such information belongs to its investors on whose behalf it has voted and not the general public.
If conflict of interest arise in connection with the voting of proxies, Horizon will analyze, document and report on such potential material conflict of interest.
Voting Policy Procedure:
- Horizon votes the Japanese and global holdings from Montevideo, Uruguay.
- Horizon intends to vote in all meetings available for voting at investee companies.
- Horizon uses the services of an independent proxy administration firm. The proxy administration firm performs various proxy vote related administrative services such as vote processing and recordkeeping functions. The proxy administration firm for Horizon is ISS.
- As a general rule, Horizon will analyze and submit all votes on a case by case basis.
- In forming our vote decisions, we take into account any issues we have discussed with companies.
- We do not automatically support boards and we may oppose management on AGM and EGM resolutions if we believe it serves best sustainable growth and long term value.
- Horizon will keep electronic record of all votes submitted. However, Horizon will not make these records public.
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.
Subject to underlying client confidentiality and investment strategy reasons, where requested (or as required by law), Horizon may disclose to a client or a client’s fiduciaries the manner in which Horizon exercised its stewardship responsibilities, including voting rights on behalf of the client. However, it may not always be appropriate to disclose stewardship activities or voting actions at a detailed level.
Horizon will not normally disclose its voting intentions, but may inform parties of the provisions of this policy.
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 and skills and resources needed to appropriately engage with the companies and make proper judgments in fulfilling their stewardship activities.
Horizon, thanks to its team of analysts and the portfolio manager, has an adequate structure to contribute positively to the sustainable growth and long-term value of Investee companies. We always strive to have a deep and detailed understanding of the companies in which we invest. In order to have an in-depth knowledge of the investee companies, each analyst is in charge of analyzing its financial statements, organize conference calls with senior management of the company (CFO, CEO, Investor relations), and organize company visits and face to face meetings. Following the news that could impact the operations of the companies in which we invest is also part of our process to understand the business environment of such companies. Horizon conducts yearly self-evaluations with respect to the status of its implementation of each principle and discloses the results on its website, toward continued improvement of its stewardship activities.
Initiation: April 2015
Subsequent revision: November 2017
Last revision: November 2017
Conflicts of Interest Policy in Relation to Japan’s Stewardship Code
Principle 2 of the Stewardship Code states:
Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
An institutional investor’s duty is to act in the interests of its clients and/or beneficiaries. Conflicts of interest will inevitably arise from time to time, which may include when voting on matters affecting a client. Institutional investors should put in place, maintain and publicly disclose a policy for identifying and managing conflicts of interest with the aim of taking all reasonable steps to put the interests of their client or beneficiary first. The policy should also address how matters are handled when the interests of clients or beneficiaries diverge from each other.
In particular, asset managers should identify specific circumstances that may give rise to conflicts of interest which may significantly influence the exercise of voting rights and/or dialogue with companies, and set out and disclose specific policies on measures for effectively eliminating the influence of such conflicts including avoiding such conflicts, thus securing the interests of clients and beneficiaries.
The management of Horizon recognizes that it has important roles and responsibilities in strengthening the governance of the company and managing conflicts of interest, and takes appropriate action on such issues.
By the same token, Horizon recognizes the importance of managing potential conflicts of interest that may exist when we vote a proxy solicited by a company with whom we may have a material business or personal relationship, or where individuals directly or indirectly affiliated with Horizon are appointed to the board of an investee company (or any material trading partner of the investee company).
The investment team and compliance team are responsible for monitoring possible material conflicts of interest with respect to proxy voting. Application of the guidelines to vote proxies will, in most instances, adequately address any possible conflicts of interest. However we do not rigidly apply the guidelines. For proxy votes that involve a potential conflict of interest, or are inconsistent with (or not covered by) the guidelines but are consistent with management’s recommendation, we will review the voting rationale, consider whether business relationships between Horizon and the company have influenced the proposed inconsistent vote and decide the course of action to be taken in the best interest of our clients. In those cases where risk of material damage arises the conflict will be disclosed to the client.
In those cases where individuals directly or indirectly affiliated with Horizon are appointed to the board of an investee company, Horizon will require the aforementioned individuals to always use ethical and appropriate judgement to make seemingly correct choices when conflicts arise.
This dual role creates an ongoing obligation for the appointed individual to consider the needs of both parties independently and to ensure that any information received from either party is not shared inappropriately. While it is generally considered that the interests of Horizon, its clients and the investee companies are well aligned, that alignment may break down in certain circumstances. If conflicts of interest arise when a task is being carried out on a board of a company in which any fund managed by Horizon is invested in, the member of the board involved must not advise on the relevant voting procedure or vote on the matter concerned.
In addition to the aforementioned, measures and processes for prevention, control and monitoring will be applied, such as the setting up of confidentiality areas with the establishment of suitable firewalls, or the setting up of regulations with regard to the acceptance of gifts or other benefits, among others.
As a general rule, when any conflicts of interest arise a report on the matter will be drawn up, stating the main issues encountered and the measures implemented to avoid or manage such conflict. Horizon will hold a register in which it will record the aforementioned reports.
These guidelines regarding conflicts of interest are to be thoroughly absorbed throughout Horizon, through clear descriptions in the internal policies and procedures which all executives and employees are to abide by, and also through regular periodic training in compliance. Horizon will be persistent in its training efforts for all its members, to ensure that conflicts of interest do not arise or, in case they arise, are properly managed.
Japan Proxy Summary Report (from 1st of July 2017 to 30th June 2018)
Proxy Voting Summary (total number of companies 12)
|Key categories||Total Proposals||For||Against|
|Election of Board of Directors and Auditors||92||83||9|
|Allocation of Retained Earnings (Dividend)||7||7||0|
|Anti‐Takeover Measures (Rights Plan)||0||0||0|
Institutional Shareholder Services Inc. provides proxy services to Horizon but Horizon makes independent decisions on proxy voting. If management provides adequate explanation and rationale, Horizon will support management proposals.
|ISS Recommendations||ISS||Horizon FOR||Horizon AGAINST|
|ISS “For” Recommendation||107||104||3|
|ISS “Against” Recommendation||11||5||6|