The Financial Services Authority, Japan’s independent regulator, published the “Principles for Responsible Institutional Investors” (the “Code”) in 2014, with revisions published in 2017.  The Code seeks to promote sustainable growth of companies through investment and dialogue. The stewardship principles enshrined in the Code reflect the responsibility of institutional investors to engage constructively with invested companies with the aim of enhancing long-term returns, while fostering and improving corporate value and sustainable growth. The Code reflects the complementary roles of a company’s Board of Directors and of its institutional investors in ensuring high standards of corporate governance and thereby promoting the sustainable growth of companies, and medium-to long-term investment returns for shareholders.  The Code provides a framework for good practice in engaging with investee companies, and defines principles considered helpful to institutional investors in fulfilling their stewardship responsibilities with due regard to both their clients and beneficiaries and to investee companies.


Indus Capital Partners, LLC (“Indus”) is a specialist asset management company, investing principally in international equities, with a focus on Asia, and on global emerging markets.  Indus is registered as an investment adviser with the US Securities and Exchange Commission (the “SEC”).


Indus believes that companies should manage their operations in the best interests of shareholders, and seek to enhance long-term value. Indus is a signatory to the Code, and in accordance with the Code’s requirements to disclose how it proposes to fulfill its stewardship responsibilities, sets forth below the manner in which it implements the principles contained therein.


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


Indus strongly supports the principles of the Code.  Engagement with companies in which it invests forms a key component of the firm’s investment process.  This allows us to develop our understanding of a company’s business strategy, prospects, attitude to risk, and to assess whether the company adheres to standards of corporate governance that will support the company’s long-term business, while fulfilling the best interests of its shareholders.


Principle 2 – Institutional investors should have a clear policy on how they manage conflicts on interest in fulfilling their stewardship responsibilities, and publicly disclose it.


Indus understands that conflicts of interest may occur in the pursuit of stewardship responsibilities.  Indus maintains a robust policy to identify, manage and monitor any such conflicts of interest, and ensure that decisions are taken wholly in the interests of its clients. In compliance with SEC rules, Indus adopts a risk-based approach to avoid conflicts of interest and to take these into consideration in the implementation of policies and procedures.  Any conflicts of interest are disclosed in Indus’s Form ADV Part 2A filed with the SEC. The policy is subject to regular senior management review, including by the firm’s Chief Compliance Officer, General Counsel, and, as necessary, Management Committee. The policy requires all staff to notify Indus compliance team in the event that they become aware of any material conflict of interest.   Indus understands the need for independent oversight of proxy voting, and achieves this goal through the use of a third party proxy administrator as described fully in its proxy voting policy. 


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.


Indus considers regular monitoring of investee companies to be a key responsibility of fundamental investment management. Comprehensive and continuous research and regular engagement with investee companies is an intrinsic characteristic of the firm’s investment philosophy and approach. Indus conducts thousands of meetings each year with company management both in Japan and overseas, as well as attending analysts’ results meetings, roadshows, and shareholder meetings. Detailed financial analysis incorporates regular monitoring and analysis of published company reports and accounts as well as other company announcements, together with assessment of publicly available information including broker and independent research, and external data suppliers, and triangulates publicly disclosed information from suppliers, competitors and customers. 


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.


Throughout the investment process, Indus seeks to engage constructively with investee companies to ensure that they are pursuing strategies and processes that reflect the best interests of shareholders, while ensuring sustainable medium- to long-term growth. In the event that Indus identifies concerns regarding management process, strategy, or the application of best standards of corporate governance, Indus will seek to discuss its concerns with members of the investee company’s management, or legal counsel, as it considers appropriate. The level of engagement that is appropriate in each case is considered on its own merits. Indus does not object in principle to collective action by investors, but normally seeks to engage individually with the companies in which it invests. Complying with United States securities regulations, to which Indus is subject, can be complex and technically challenging with respect to collective action, and Indus generally finds that the potential risks of collective action outweigh the potential benefits for its clients and therefore contemplates collective action on a case by case basis and analysis. 


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. 


Indus seeks to discharge its responsibilities under the Code by means of the implementation of a clearly defined voting policy. Each vote is considered individually, taking into account all prevailing and relevant circumstances for the company. Indus has a clear proxy voting policy, which provides transparency on our decision-making process in the event of any escalation of voting activities.  The proxy voting policy can be made to clients available upon request.


The policy is subject to regular senior management review by the firm’s Chief Compliance Officer, General Counsel, and Management Committee. Proxy voting procedures and record-keeping are the responsibility of the Indus operations team, who report in turn to the firm’s Chief Operating Officer.  The team refers, as appropriate, to the Portfolio Manager for voting decisions.


Indus endeavors to take all reasonable steps to vote proxies in the best interests of clients, applying prevailing best practices and codes and standards of corporate governance. When voting proxies, Indus gives significant consideration to the recommendation of a company’s management, but will only support this if Indus believes that to do so would be in the best interests of the company’s shareholders.


While Indus fully supports the goals of the Code and its responsibilities thereunder, Indus does not generally disclose voting records to third parties (other than proxy vote processors) elsewhere in the world and believes that its practice in Japan should be consistent with this global approach.  Moreover, consistent with its responsibilities under the Code, Indus has considered whether to make disclosure carefully and determined that the potential risks associated with disclosure (including to the privacy of Indus’s clients and the confidentiality of its various investment strategies) outweigh at this time the potential benefits to its clients and investee companies.  Moreover, given Indus’s typically modest positions in its investee companies and varied strategies in holding shares of investee companies, Indus believes that disclosure of its voting record on certain issues could work to unnecessarily impede its dialogue with the management of certain investee companies and possibly also confuse other holders of the stock of investee companies as to Indus’s investment strategies.     


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.


Indus’s disclosure on how it proposes to fulfill its stewardship responsibilities under the Code is made available on its website, and updated as necessary, but no less than annually.


Indus’s proxy voting policy is available for clients and their fiduciaries upon request.  Voting intentions are not normally disclosed to third parties, other than to a proxy vote processor. As discussed above, voting actions are not publicly disclosed.


Where this does not conflict with client confidentiality or the pursuit of investment strategies, the manner in which voting rights have been executed may be disclosed to a client or client’s fiduciaries.  


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 engage appropriately with the companies and make proper judgments in fulfilling their stewardship activities.


Indus considers companies’ business strategy and process in assessing sustainable long-term growth, taking into account capital structure, financial stability, and the application of appropriately high standards of corporate governance.


The execution of this process is the responsibility of the investment team, which comprises around 30 professionals. The portfolio managers and Japan analysts have extensive experience investing in Japan (in several cases, in excess of 20 years). Investment personnel engage regularly with Japanese corporate management, as described under Principle 3 above. The Indus investment team includes six fluent or native Japanese speakers. The research process is supervised by the Japan Head of Research, as well as by the portfolio managers.


Members of the investment team specializing in Japan are located in Indus’s headquarters in New York, as well as in other offices in Asia and the US. Indus’s expertise in Asian markets, with dedicated investment staff analyzing companies and industries in Asia ex-Japan, is of direct benefit in the understanding and monitoring of investee companies in Japan.  Our global presence adds further context and perspective in understanding the supply chains, customer requirements, and competitive environment for many of the companies in which we invest.  


Although Indus undertakes its engagement with investee companies on an independent basis, the firm recognizes that discussions with other investors may foster better engagement with investee companies, and does not exclude the possibility of engaging in such dialogue in the event that this is likely to enhance the quality of its stewardship responsibilities.     


Indus’s Code Disclosure is made available on its website, and fully reviewed and updated as necessary, but no less than annually.