スパークス・グループ（8739） – FY2021 3rd Quarter Earnings Presentation

FY20213rd Quarter Earnings Presentation(Apr. 2021 – Dec. 2021)January 31st, 2022SPARX Group Co., Ltd.https://www.sparxgroup.com/SPARX StatementMissionTo make the world wealthier, healthier, and happierVisionTo be the most trusted and respected investment company in the world.2FY2021 Q3 Performance3About This Earnings PresentationThis earnings presentation provides management accounting details not included in the consolidated statement. Note that, as shown in the following diagram, SPARX categorizes (1) management fees, (2) performance fees, and (3) other operating revenue, while (1) ordinary expenses, (2) commissions paid, and (3) bonuses are included in operating and general expenses.SPARX Group has set base earnings as its overriding administrative index. Base earnings demonstrate whether a business has the earning capacity needed for a sustainable, stable foundation. We use the following formula to calculate base earnings:Base earnings = (Management fees ̶ Commissions paid) – Ordinary expenses= Management fees (after deducting commissions) – Ordinary expensesIn financial accounting, operating profit includes one-time or additional performance fees, but these fees fluctuate considerably, according to trends in the stock market or business progress in real asset investments. Therefore, base earnings indicate genuine earning capacity.Financial accountingManagement accountingOperating profitOther operating revenuePerformance feesAdditional profitBonusesBase earningsOperating profitOperating revenueOperating andgeneral expensesManagement feesOrdinary expensesCommissions paid4Consolidated Earnings Summary (1) Performance・Base earnings increased significantly mainly due to an increase in average AUM compared to the same period of the previous year. ・Net income increased by 40.8% due to the recognition of a gain from the partial sale of our investment securities which we have seeded.（Unit:Millions of yen）FY2020FY2021Apr.2020-Dec.2020Apr.2021-Dec.2021YoY changeOperating revenue10,25310,602+3.4%Operating profit4,3824,891+11.6%Net income2,6163,684+40.8%Base earnings3,1434,597+46.2%(Note) See pages 4, 6, 32, and 37 for more on base earnings.5Consolidated Earnings Summary (2) PerformanceFY2020FY2021Apr.2020-Dec.2020Full YearApr.2021-Dec.2021YoY change Average AUM(Billions of yen) 1,294.21,343.81,583.1+22.3% 　 Management fee rate (After deducting commissions) Management fees (After deducting commissions)（％）0.70%0.69%0.69%-0.01 (Millions of yen)6,7819,2938,134+20.0% – Ordinary expenses(Millions of yen)3,6374,8483,537-2.8% Base earnings(Millions of yen)3,1434,4444,597+46.2% Performance fees(Millions of yen)2,1513,1661,036-51.8% Percentage of AUM eligible to earn peformance fees（％）31.1%32.5%41.0%+9.9 Other operating revenue(Millions of yen)134206179+33.5%(Millions of yen)1,0431,406909-12.8% Operating profit(Millions of yen)4,3826,3494,891+11.6%(Millions of yen)2,6163,4683,684+40.8% – Bonuses （including ESOP Expense) Profit attributable to owners of parent Return on equity (ROE)（％）16.7%16.1%20.8%+4.0(Note 1) Management fees include administrative fees for the power stations related to our Japanese Renewable Energy Investment Strategy. This note applies throughout this presentation.(Note 2) Performance fees include one-time fees received as compensation for real estate purchases/sales related to our Japanese real estate investment strategy, as well as one-time fees (acquisition fees) received as compensation for formulating power station plans related to our Japanese Renewable Energy Investment Strategy. This note applies throughout this presentation.(Note 3) Percentage of AUM eligible to earn performance fees show the ratio of AUM with performance fee to the total AUM at the end of the specified period.6Consolidated Earnings Summary (3) AUMAUM increased by 7.5% from last fiscal year-end due to the new subscriptions and favorable market trend.（Unit:Billions of yen）AUMAverage AUM（9 months）As of March, 2021As of December, 2021FY2020Q3FY2021Q3Change (%)YoY change(%)Japanese Equity1,030.21,132.6+9.9%881.01,079.2+22.5%OneAsiaReal AssetsPrivate Equity(MiraiCreation, etc.)134.3255.3115.7117.9254.3145.7-12.2%-0.4%+25.9%72.4223.0117.6126.4253.9123.5+74.6%+13.8%+5.0%Total1,535.71,650.6+7.5%1,294.21,583.1+22.3%As of December, 2020 As of March, 2021 As of December, 2021YoY change NIKKEI 225(JPY ) TOPIX KOSPI1,80427,4442,8731,95429,1783,0611,992+10.4%28,7912,977+4.9%+3.6%*See our “Notice of Month-End Assets Under Management” for details on SPARXʻs AUM as of December 31, 2021.https://ssl4.eir-parts.net/doc/8739/tdnet/2068190/00.pdf7Business Progress Report and Future Plans8Latest Business Progress ReportJapanese EquityPerformance fees for the long-short strategy positively contributed in this quarter as well. AUM for Japanese equity has been recovered to 1.1 trillion yen. OneAsiaGain from the partial sale of our investment securities which we have seeded under this strategy contributed in this quarter. Real AssetsWe will aggressively work on projects other than solar power as well. We will also continue to actively consider investing in high-quality power plants that have already been operated.Private EquityWe have established Mirai Creation Fund III and its AUM is 28 billion yen as of December-end. It is targeted to have a size of 100 billion yen and marketing activities are currently underway. 9Four Pillars of Growth: Combining High Profitability and StabilityHigh profitabilityFund performance generates significant income(performance fees)StabilityOngoing long-term contracts generate stable incomeJPY1,132.6 billionJapanese EquityOneAsiaJPY117.9 billionJPY254.3 billionRealAssetsPrivate EquityJPY145.7billionPlease be sure to read the appendix attached at the end of this documents.10(1) Japanese Equity Investment Strategy(AUM of JPY 1,132.6 billion as of December 31, 2021)Japanese EquityOneAsiaRealAssetsPrivate Equity11Japanese Equity Investment Strategy: Status of AUM・AUM for Japanese equity long-short investment strategy increased significantly fromthe end of the previous fiscal year due to subscriptions for the newly established funds.・ AUM of Japanese equity sustainable investment strategy mainly consisted of ESGinvestment increased from the end of the previous fiscal year due to its favorableperformance and cash inflows.Mar. 2021Dec. 2021ChangeChange (%)（Units︓Billions of yen） Japanese Equity Long-Short Strategy Japanese Equity Focus All Cap Strategy Japanese Equity Mid & Small Cap Strategy Japanese Equity Market Neutral Strategy Japanese Equity Sustainable StrategyOther Total78.4611.2193.038.1106.92.5AUM105.2668.7197.730.0128.42.3+26.8+57.4+4.7-8.0+21.5-0.11,030.21,132.6+102.3+34.2%+9.4%+2.5%-21.1%+20.1%-5.8%+9.9%12(2) OneAsia Equity Investment Strategy(AUM of JPY 117.9 billion as of December 31, 2021)Japanese EquityOneAsiaReal AssetsPrivate Equity13OneAsia Equity Investment Strategy Status of AUMAUM decreased from the previous fiscal year-end due to the impact ofunfavorable market trend and the capital outflows in both South Korea andPan-Asia regions.（Units︓Billions of yen）AUMSouth KoreaPan-Asia TotalMar. 2021Dec. 2021ChangeChange (%)120.813.5134.3107.110.7117.9-13.6-2.7-16.4-11.3%-20.4%-12.2%14(3)Real Asset Investment Strategy(AUM of JPY254.3 billion as of December 31, 2021)Japanese EquityOneAsiaReal AssetsPrivate Equity15Renewable Energy Power Station InvestmentAssets under managementAs of December 31, 2021JPY 241.6 billionNumber of Investments: 31(approx. 582 MW)Number of stations sellingelectricity: 27 (approx. 474 MW)Solar power generationWind power generationBiomass power generation16(4)Private Equity Investment Strategy(AUM of JPY145.7 billion as of December 31, 2021)Japan EquityOneAsiaReal AssetsPrivate Equity(Note) Regarding Mirai Creation Fund I, as five years have passed since its establishment, the balance for compensation calculation target has changed from the commitment amount to the balance of investment securities held since November 2020, so AUM of the Fund is decreasing.17Private Equity Investment Strategy（１）Established “Mirai Creation Fund Ⅲ”TOYOTA and SMBC participated again as initial investors just like the previous fund II. This Fund III has added the new investment area, and the investment activities started in October 2021. AUM is 28 billion yen as of December-end.Toyota MotorCorporationSumitomo MitsuiBanking CorporationSPARXLP investorsMiraiCreation Fund ⅢDomestic and internationalstart-up enterprisesIntelligent technologiesRoboticsHydrogen energyElectrificationNew materialsCarbon Neutrality・Mirai Creation homepage: https://mirai.sparx.co.jp/en/18Private Equity Investment Strategy （２）Mirai Creation Fund Portfolio statusExamples of past IPOs and exits Soracom, Inc. (acquired by a major corporation in August 2017) PKSHA Technology, Inc. (listed in September 2017) Autonomous Control Systems Laboratory (listed in December 2018) Sansan, Inc. (listed in June 2019) Giftee, Inc. (listed in September 2019) Freee, K.K. (listed in December 2019) Medley, Inc.(listed in December 2019) Ficha Inc.(listed in June 2020) Neural Pocket Inc.(listed in August 2020) WealthNavi Inc.(listed in December 2020) Joby Aviation, Inc.(listed in August 2021) Japan Data Science Consortium Co., Ltd.(listed in December 2021) Finatext Holdings Ltd.(listed in December 2021).etc.Going forward, we will continue to see more portfolio companies newly listed or acquired by major corporationsIn the future, a mechanism that allows a performance fee to be recorded if the investment principal can be distributed to LP investors in excess of a certain percentage.(Note) We expect Mirai Creation Fund I to begin earning performance fees from FY2022 on.Reference to particular securities and their issues are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell securities.19Aiming to Create Business in Growth Sectors in the New EraFundTeaching the next generation an investment philosophy replete with the entrepreneurial spirit needed to strive for corporate value growthFurther bolstering our fund businessNew business creationEncouraging a corporate culture and entrepreneurial spirit that generates businesses from the ground upGrowth sectorsGrowth sectors in Growth sectors in Growth sectors in the new erathe new erathe new eraEnergyEnergyQuantum Quantum computingcomputingMedical & Medical & long-term long-term carecareWhile maintaining a sound financial baseLong-term Excess CashReinvesting some capital into creating new value20Other21Return to Shareholders － DividendA year-end expected ordinary dividend to be 12 yen per share which is an increaseby 1 yen from 11 yen of the previous fiscal yearʼs ordinary dividend consideringthe financial condition remains stable, steadily increase in the Base Earnings, andso on.Ordinary Dividend per shareCommemorative dividend per share11.0 12.07.0+3.07.0+3.09.07.012.010.08.06.04.02.00.080%60%40%20%FY2017FY2018FY2019FY2020FY2021(Ordinary Dividend Payout Ratio)45.1%39.1%50.8%50.2%FY2017FY2018FY2019FY2020FY2021(Note 1) Dividend will be officially decided and implemented upon the resolution of the 33rd Ordinary General Meeting of Shareholders to be held in June 2022.(Note 2) Ordinary Dividend Payout Ratio (Base Earnings)= Total amount of ordinary dividends ÷ Base Earnings22About Future GoalsSPARX will double the AUM of the four pillars of growth to 3 trillion yen over the five years through 2026.Japan Equity・ Strengthen our initiatives for highly profitable alternative products such as long-short strategies and engagement strategies, which are re-expanding with a target of approximately 100 billion of assets under management.・ The sustainable investment strategy, which has doubled its AUM this year, continues to receive strong interests from overseas institutional investors. We maintain our high-quality stable performance for this strategy rather than justblindly chasing bigger numbers for AUM and would like to double AUM even more.OneAsia・SPARX will make our Asian investment business to be the same size or even bigger than our Japanese equity business by building a multi-layered and high quality investment system over times.Real Assets・While shifting the focus of development to power plants that are expected to continue to have high investment returns such as solar power, biomass and geothermal power, we also intend to aggressively develop investment strategies such as green hydrogen and corporate PPA for after the feed-in tariff systemends.Private Equity・Aim to launch a new fund with investment target that includes companies contributing to “carbon neutral” ・In near future, performance fee will be recorded as a part of the gain on sale due to the IPO of the company invested by the Mirai Creation Fund, so we will continue to focus on sales activities to maximize its performance fee.・ Steadily invest in portfolio companies for the Space Frontier Fund and the Japan Monozukuri Mirai Fund.In addition to the above goals for four pillarsNew Area・ Under a conservative financial management policy with a certain level of seeding and within Groupresources, we will further promote our unique investments in fields of the new era’s growth areas that utilize AI technologies such as energy, medical and nursing care, and finance which are linked to new toolslike quantum computing. This unique investments will contribute to the improvement of our group ROE.23 Changes in AUM and Base Earnings since its Listing AUM at fiscal year-end（100MM JPY）Base Earnings（100MM JPY）Base Earnings have been recovered to the same level as the record-high back in March 2007（Note）The amount of its base earnings for FY21 is calculated by using the actual results from April to December 2021 and annualized (multiplied by 4/3).24 Trends in AUM for the Four PillarsFY-end AUM（100MM JPY）18,00016,00014,00012,00010,0008,0006,0004,0002,000016,50615,35611,240 11,856 11,2419,615 9,599 9,6196,937FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021Pravate EquityReal AssetOneAsiaJapanese EquityAUM for Private Equity and Real Asset has been steadily increasing every year25 Our Initiatives for ESGIn relation to ESGOur Groupʼs ActivitiesE︓EnvironmentS︓Social■Investing, developing and managing operation of renewable energy power plants■Investing in ESG related stocks■Investing in the area of carbon neutral■Announcement of endorsement of TCFD recommendations, etc.■Support for disaster recovery■Donations to the areas/countries which were affected by COVID-19■Investing in the healthcare area■Implementing working style reformations■Keeping employees healthy■Social return through activities such as Energy Summit, etc.G︓Governance■Transition to institute an Audit and Supervisory Committee■Thorough Compliance■Strengthen BCP policies■Customer-oriented business operations, etc.26[Reference] Hybrid Business ModelA hybrid model that combines our traditional strategy of investing in highly profitable listed stocks with the stable strategy of financing real assets/Private EquityJapaneseEquityOneAsiaReal AssetsPrivateEquityJapaneseEquityOneAsiaReal AssetsPrivateEquityAUM As of December 2021JapaneseEquityOneAsiaJPY1,132.6bnJPY117.9bnReal AssetsPrivateEquityJPY254.3bnPrivate Equity Mirai Creation Fund (2015) Establishes SPARX AI & Technologies Investment(2018) Establishes SPARX Innovation for Future(2020)JPY145.7bnJapaneseEquityOneAsiaReal AssetsPrivateEquityReal Assets Incorporates SPARX Asset & Trust Management (2014) Establishes SPARX Green Energy & Technology (2012)OneAsia Acquires PMA Capital Management (now SPARX Asia Capital Management; 2006) Acquires Cosmo Investment Management (now SPARX Asset Management Korea; 2005) Fund of funds strategy (1997; specializing in Asia-Pacific since 2002)Japanese Equity Japanese Equity Focus strategy (1999) Japanese Equity Focus All Cap strategy (1998) Japanese Equity Long-Short All Cap strategy (1997) Japanese Mid & Small Cap strategy (1989)Market swings have a significant impactDiversified strategy leads to increased stability27Passing On SPARX’s Investment Philosophy through the Buffett Club, an Internal Study GroupWhat is the Buffett Club?Through studying and discussing the investment philosophies of noted investor Warren Buffett and other capitalists, SPARX employees learn the value of wanting to make clients wealthier, healthier, and happier as a part of “the most trusted and respected investment company in the world.”We have regularly held these study groups since our founding as a way to convey SPARX’s investment philosophy to the next generation.28InformationWe have produced a new video that highlights the companyʼs history̶including the reason for its name̶as well as its investment philosophy, corporate mission, performance, and its present and future endeavors, in just five minutes. ■ SPARX Group Showcase Video/English Narrationhttps://www.sparx.jp/tv/fan/2881.htmlWe distribute videos and send information via Facebook so that you can better understand the activities of SPARX. The official SPARX YouTube was fully renewed in December last year, and we are working to convey the new appeal of our company. Thank you for visiting us.■ SPARX TVhttps://www.sparx.jp/tv/■ Official Facebookhttps://www.facebook.com/SPARXGroup/■ Official YouTubehttps://www.youtube.com/user/8739SPARX29Company ProfileCompanySPARX Group Co., Ltd.Representative President & CEO Shuhei AbeAddress1-2-70 Konan, Minato, Tokyo, JapanFoundedJuly 1, 1989CapitalizationJPY8,587 million(as of December 31, 2021)Employees175 (as of December 31, 2021)ExchangeTokyo Stock ExchangeFirst SectionTicker8739President and Group CEO Shuhei Abe1954: Born in Sapporo.1978: Graduated from Sophia University, Faculty of Economics.1980: Received an MBA from Babson College. After returning to Japan, hiredby Nomura Research Institute, Ltd. Worked as a corporate researchanalyst evaluating individual companies listed on Japanese stockmarkets.1982: Seconded to New York’s Nomura Securities International, Inc., andworked in sales of Japanese stocks to US institutional investors.1985: Founded Abe Capital Research in New York. Provided portfoliomanagement and advice on Japanese stocks to European andAmerican investors through the Quantum Fund and other funds, while managing the assets of individual property owners in Europe and the US.1989: After returning to Japan, established SPARX Asset Management (now SPARX Group Co., Ltd.) and appointed as president &representative director (current post).2005: Completed the AMP at Harvard Business School.2011: Appointed to the Subcommittee to Study Costs and Other Issues of the Japanese government’s Energy and Environment Council.2012: Appointed to the Japanese government’s Supply-Demand VerificationSubcommittee.2012: Appointed to the Risk Advisory Committee for the Japan Bank forInternational Cooperation (JBIC).30Supplementary Materials31＜Reference＞ Revenue Structure and Important Management IndicatorsBusiness that receives fees at a fixed rate of AUMRevenue Structure Management Fees = AUM × management fee rate Performance Fees = AUM × percentage of AUM eligible to earn performance fees × performance fee rateImportant Management Indicators Asset under management (AUM) Management fee rate Percentage of AUM eligible to earn performance fees Base Earnings = management fees (after deductingcommissions) – ordinary expenses※ The formulas above simply explain revenue structure, not the exact calculations actually used. 32Quarterly Trends in Operating RevenueManagement fee rate remains at the high level while management fee balancealso remained strong33Structure of Performance Fees(Related to Equity Investment Fund)Performance Fees are recognized for NAV per share exceeding HWM as of record date for fund34Breakdown of Operating and General Administrative Expenses• Commissions paid expenses increased due to an increase in AUM for publicly offered investment trusts. • Depreciation on fixed assets and other expenses related to office has decreased. （Units: Millions of yen）FY2020FY2021Apr.2020-Dec.2020Full YearApr.2021-Dec.2021YoY change Commissions paid Personnel exp. Travel exp. Property rent Entrusted business expenses Depreciation on fixed assets Advertising exp. Research exp. Other expenses 1,1892,53221218834217912365281,6903,403322911,1192821163206901,2642,469+6.2%-2.5% 46+114.5%19676515187247483-10.4% -8.3% -30.3% -4.6% +4.9%-8.4% -2.7% Total: Operating and general administrative expenses5,8707,9465,711 Ordinary expenses3,6374,8483,537-2.8% (Note1） The figures above, excluding “YoY change” are truncated. “YoY change” is rounded to the nearest tenth of a percent.(Note2） The “Personnel expenses” data includes payments for legal welfare, bonus and temporary staff, etc. other than salary.(Note3） The “Ordinary expenses” is calculated by deducting (1) Commissions paid, (2) Bonuses (including allowance for bonuses, legal welfare expenses related to bonuses, and ESOP expense) and (3) Severances package for key members, from total operating and general administrative expenses; hereinafter the same applies in this document.35Quarterly Operating and General Administrative ExpensesAlthough the recent ordinary expenses have decreased, mainly due to decrease of office related expenses because of COVID-19, Cost-control taken continuously and cautiously, considering the increase of ordinary expenses, in the midst of business expansion36Quarterly Base EarningsBase earnings remained solid due to increased management fee and decreased our expenses. (Note) As preliminary figures, the 「Management fee (Net)」 is calculated by multiplying the management fee rate (after the deduction of commission paid) and the average AUM for the period.37As of December 2021 Consolidated Balance Sheet (1)The industry the Company belongs to is significantly influenced by economic and market conditions. Thus, the balance is maintained conservatively. The amount is kept as three yearsʼ worth of ordinary expenses level which calculated by “Cash and Cash Equivalent” minus “Interested-Bearing Debt” plus highly liquidity “Investment Securities” with consideration of potential value decline.(Units: Millions of yen)Interest-Bearing Debt9,000Other Liabilities　3,751Cash and Cash Equivalent 15,407Receivables etc.　5,772Tangible&intangible Assets 832Investment Securities12,541Other Assets　2,257Mostly seed money to funds that the Company managesNet Assets24,058Equity Ratio65.4%Total Assets　36,809Liabilities ＆ Net Assets　36,80938As of Dec. 2021 Consolidated Balance Sheet (2)(Units: Millions of yen）Mar. 2021Dec. 2021YoY change Current assets 　 Cash and cash equivalents 　 Receivables Fixed assets 　 Investment securities Total assetsShort-term loans payableCurrent portion of long-term loanspayableLong-term loans payablePayablesProvision for bonuses, ESOP Total liabilities 　 Common stock 　 Add’l paid-in-capital 　 Retained earnings Treasury stockTotal Shareholder’s Equity 　 Valuation difference on AFS securities 　 Foreign currency translation adjustment Total net assets23,54119,9353,16114,44511,94837,9862,0005,0002,0004,01170114,7108,5872,55513,116-3,549 20,7091,5161,04822,04615,4075,77214,76312,54136,8092,00007,0001,2951,38312,7508,5872,55514,401-3,685 21,8581,1311,06623,27624,058-1,495 -4,528 +2,611+317+593-1,177 – -5,000 +5,000-2,716 +681-1,959 – – +1,284-135 +1,148-384 +18+782Decreased due to the investment in seed money, payment of dividends and bonuses, etc. Increased mainly due to an increase in management fee receivable and an increase in receivable from the sale of a portion of our investment securitiesIncreased mainly due to the investment in seed moneyRefinancing of loanDecreased mainly due to payment of bonuses and taxes Payment of dividend︓ ▲JPY 2,231MMProfit attributable to owners of parent FY2021 3Q :＋JPY 3,684MMCumulative effect of adopting the new revenue recognition standard: ▲JPY168MMDecrease in unrealized gains from the sales of seed money investment (Note1) Figures above are truncated.(Note2) Investment securities include the seed money of the Company funds.39Primary Investment Strategies: Composite Returns Since Valuation Began ①Japanese Equity Active Long-Only investment strategyJapanese Equity Mid & Small Cap investment strategyJapanese equity active long-only investment strategyTOPIX (Dividend included)Japanese equity mid & small cap investment strategy RNMS16.014.012.010.08.06.04.02.00.07.06.05.04.03.02.01.00.079918991999100021002200230024002500260027002800290020102110221023102410251026102710281029102020212020002100220023002400250026002700280029002010211022102310241025102610271028102910202021202（Annualized Return）Japanese equity active long-only investment strategy11.35%Reference Index Reference IndexMeasurement PeriodExcess ReturnVolatility of CompositeReturn (Annualized)2.99%8.36%TOPIX (Dividendincluded)1997/5〜2021/1220.04%（Annualized Return）Japanese equity mid & smallcap investment strategy Reference IndexMeasurement PeriodExcess ReturnVolatility of CompositeReturn (Annualized)8.11%4.78%3.32%Reference IndexRussell/NomuraMid-Small CapIndex2000/1〜2021/1217.65%※Performance is in Japanese Yen and is shown gross of fees.※Performance is in Japanese Yen and is shown gross of fees.Be sure to read the additional materials appended to the end of this presentation.Source: SPARX Group (as of December 31, 2021)40Primary Investment Strategies: Composite Returns Since Valuation Began ②Japanese Equity Long-Short investment strategyJapanese Equity Strategic investment strategyJapanese equity long-short investment strategy TOPIX (Dividend included)Japanese equity strategic investment strategy TOPIX (Dividend included)3.02.52.01.51.00.50.010.09.08.07.06.05.04.03.02.01.00.0000210022002300240025002600270028002900201021102210231024102510261027102810291020202120299910002100220023002400250026002700280029002010211022102310241025102610271028102910202021202（Annualized Return）Japanese equity long-shortinvestment strategy4.83%2.88%1.95%Excess ReturnVolatility of CompositeReturn (Annualized)※Performance is in Japanese Yen and is shown net of fees.TOPIX (Dividendincluded)2000/6〜2021/127.39%Reference Index10.15%Reference Index（Annualized Return）Japanese equity strategicinvestment strategyExcess ReturnVolatility of CompositeReturn (Annualized)※Performance is in Japanese Yen and is shown gross of fees.3.13%7.03%TOPIX (Dividendincluded)1999/7〜2021/1219.80% Reference IndexMeasurement Period Reference IndexMeasurement PeriodBe sure to read the additional materials appended to the end of this presentation.Source: SPARX Group (as of December 31, 2021)4142This report is prepared solely for the purpose of providing information to the shareholders of SPARX Group Co., Ltd. (“SPARX”) and other interested parties, and it is not intended to be a recommendation or solicitation to buy or sell SPARX shares or any other securities. SPARX and its group companies do not warrant the accuracy, completeness, or appropriateness of any data, information, opinions, or other statements contained in this report (which remain subject to auditing), and are not liable for any damage, loss, and/or other results caused by any reliance on or use of any of the said data, information, opinions, or other statements. Past results are not indicative of future performance.This report contains forward-looking statements that reflect SPARX’s plans and expectations (including for its group companies). These forward-looking statements are based on judgements and assumptions derived from SPARX’s currently held data. The statements involve known and unknown risks, uncertainties, and other factors that may cause SPARX’s actual results, performance, achievements, or financial position to be materially different from any projected results, performance, achievements, or financial position expressed or implied herein. See SPARX’s annual securities report for a discussion of the many factors that may affect SPARX’s actual results, performance, achievements, or financial position. This report is available at the Kanto Finance Bureau of the Japanese MOF. Furthermore, the content of this report is accurate as of the time of its production, and it may be altered without any prior notice. SPARX owns the copyright to this report. No part of this report may be transmitted, reproduced, quoted, cited, or otherwise used for any purpose whatsoever without the prior written permission of SPARX.SPARX Asset Management Co., Ltd. has prepared and presented the relevant part of this report in compliance with the Global Investment Performance Standards (GIPS®). The firm has been independently audited for the period from 1 April 1997 to 31 December 2014. Verification assesses whether (1) the firm has complied with all the composite structural requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and exhibit performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. The firm subject to verification is SPARX Asset Management Co., Ltd. SPARX Asset Management Co., Ltd. is registered with Japanese authorities to conduct an investment management business, an investment advisory and agency business, a Type-1 Financial Instruments business, and a Type-2 Financial Instruments business. The term “Firm” was redefined—effective 15 October 2009 and 30 November 2010—to exclude SPARX Investment & Research, USA, Inc. (SIR) and SPARX International (Hong Kong) Limited (SIHK), respectively, due to the dissolution of SIR and the transfer of SIHK’s shares to a third party. SPARX Overseas Ltd. has been excluded from the definition of the firm since December 31, 2013, due to the possibility of the former managing and administering funds managed by entities other than SPARX Asset Management. Nevertheless, the definition of the firm requires that all assets be wholly managed by SPARX Asset Management.Composite detailsA detailed account of all composite lists and other content from the firm is available upon request.Contact: Global Business Development Division, SPARX Asset Management Co., Ltd. (Tel. +81-3-6711-9200)All copyrights, trademarks, and intellectual property rights related to the Russell/Nomura indices are the property of Nomura Securities Co., Ltd. and Russell Investments.This report includes statements related to investment trusts that SPARX Asset Management manages. Note the following points:Notes on Investment TrustsThe following statements are presented in compliance with Article 37 of the Financial Instruments and Exchange Act. Note that their content may differ from the costs or risks that apply to the individual investment trusts that clients actually purchase. The costs and fees associated with the funds differ according to the marketing companies and the individual investment trust, so these statements express the maximum amounts for all fees that SPARX Asset Management collects for the investment trusts it manages. In the event that a party wishes to purchase a specific investment trust, we ask that the party makes his/her ultimate investment decision at his/her own discretion after reviewing the investment trust’s prospectus, which is available immediately upon request.43About Risks Related to Investment TrustsInvestment trusts invest mainly in stocks, public bonds, and real estate investment securities of fluctuating value (assets in foreign currencies also include exchange risks), so their net asset values (NAV) will fluctuate. Therefore, the investment trusts do not guarantee returns on invested capital, and they may incur losses due to declines in NAVs, primarily attributable to transaction price and currency fluctuations in relevant markets, resulting in balances dropping below originally invested amounts. These management-caused losses wholly belong to all beneficiaries. Specialized funds differ from diversified general investment trusts in that they manage a narrower scope of stocks. Thus, they are much more likely to experience NAVfluctuations, regardless of market trends. Long-short strategy funds operate from a short position, meaning that when shorted stocks see share price growth, fund NAVs will fall. Moreover, situations in which both long and short positions incur losses significantly raise the possibility of loss to investors, compared to that for normal equity investment trusts. These risks include only a portion of the risks related to investment trusts, and the details and nature of the risks differ according to the type of assets targeted, investment restrictions, transaction exchange, and countries targeted for each investment trust.About Costs Related to Investment Trusts (Publicly Offered Investment Trusts)The maximum expenses (fees) for SPARX’s investment trusts (publicly offered investment trusts) are as follows:- Direct costsFees at time of purchase: Up to 3.85% (after tax)Liquidation fees: NoneInvestment trust asset reserves: Up to 0.5%- Indirect costs during investment in investment trustsTrust commission: Up to 2.068% annually (after tax)Performance commission (*): Some investment trusts may require performance commissions.*The amount of performance commissions varies per the NAV level, so it is not possible to indicate a maximum amount in advance.Other costs and fees: Auditing costs; sales commissions generated by composite marketable securities (including funds) transactions, which include costs for creating prospectuses or investment reports; costs required for futures or options transactions; and custodial costs for assets in foreign currencies. When composite marketable securities are funds, they may charge for other expenses, including fiduciary trust company and custodial firm fees. These fees vary per management conditions, so it is not possible to indicate their maximum amounts in advance.The total cost of fees differs according to the period of ownership, so these fees cannot be shown.They also differ according to investment trust, so contact your dealer for more details.Asset Management CompanySPARX Asset Management Co., Ltd.Financial Services Provider Registration Number: Director of Kanto Local Finance Bureau, No. 346Memberships: The Investment Trusts Association, Japan; Japan Investment Advisers Association; Japan Securities Dealers Association; and Type II Financial Instruments Firms Association44- This material is only for the purpose of explaining the financial results prepared by SPARX Group Co., Ltd. and SPARX Asset Management Co., Ltd., and it is not a disclosure document pursuant to the Japanese Financial Instruments and Exchange Act. – This material does not intend to solicit the purchase of any specific financial instruments. Therefore, the distribution of this document or a solicitation using this document to any third party is prohibited. – Any unauthorized reproduction or copying of this document for any purpose is prohibited.SPARX Group Co., Ltd.Shinagawa Season Terrace 6F, 1-2-70 Konan,Minato, Tokyo, Japan 108-0075Tel: +81-3-6711-9100 (switchboard)45