スパークス・グループ（8739） – FY2021 Full Year Earnings Presentation

FY2021Full Year Earnings Presentation(Apr. 2021 – Mar. 2022)May 6th, 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 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・Operating revenue slightly decreased due to decrease in performance fees although management fee has increased. ・Operating profit has increased by 1.8% due to reasons stated above as well as decrease in ordinary expense.・Net income has increased by 17.4% due to the recognition of a gain from the partial sales of investment securities while we have recognized the loss on valuation of investment securities.・Base Earning has significantly increased due to recording higher management fees earned as a result of increase in our AUM.（Unit:Millions of yen）FY2020Full YearFY2021Full YearYoY changeOperating revenue14,29514,043-1.8% Operating profit6,3496,464+1.8%Net income3,4684,070+17.4%Base earnings4,4446,157+38.5%(Note) See pages 4, 6, 32, and 37 for more on base earnings.5Consolidated Earnings Summary (2) PerformanceFY2020FY2021Full YearFull YearYoY change Average AUM(Billions of yen) 1,343.81,571.9+17.0% 　 Management fee rate (After deducting commissions) Management fees (After deducting commissions)（％）0.69%0.69%+0.00 (Millions of yen)9,29310,920+17.5% – Ordinary expenses(Millions of yen)4,8484,762-1.8% Base earnings(Millions of yen)4,4446,157+38.5% Performance fees(Millions of yen)3,1661,208-61.8% Percentage of AUM eligible to earn peformance fees（％）32.5%36.7%+4.2 Other operating revenue(Millions of yen)206258+25.1%(Millions of yen)1,4061,143-18.7% – Bonuses （including ESOP Expense) Profit attributable to owners of parent Operating profit(Millions of yen)6,3496,464+1.8% Return on equity (ROE)（％）16.1%17.1%+1.0(Millions of yen)3,4684,070+17.4%(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) AUMDespite the impact of the decline in the market, AUM increased by 1.3% from last fiscal year-end due to the inflows of new funds including Mirai Creation Fund III.（Unit:Billions of yen）AUMAverage AUM（12 months）As of March, 2021As of March, 2022FY2020FY2021Change (%)YoY change(%)Japanese Equity1,030.21,021.0-0.9%912.31,063.5+16.6%OneAsiaReal AssetsPrivate Equity(MiraiCreation, etc.)134.3255.3115.7105.0256.4173.1-21.8%+0.4%+49.6%83.2231.0117.1119.5254.3134.3+43.6%+10.1%+14.7%Total1,535.71,555.7+1.3%1,343.81,571.9+17.0%As of March, 2021 As of March, 2022YoY change NIKKEI 225(JPY ) TOPIX KOSPI1,95429,1783,0611,94627,8212,757-0.4% -4.7% -9.9% *See our “Notice of Month-End Assets Under Management” for details on SPARXʻs AUM as of March 31, 2022.https://ssl4.eir-parts.net/doc/8739/tdnet/2104349/00.pdf7Business Progress Report and Future Plans8Latest Business Progress ReportJapanese EquityAUM for Japanese equity remained at 1 trillion yen while market environment is challenging. OneAsiaGain from the partial sale of our investment securities which we have seeded under this strategy contributed in this quarter as well. Real AssetsWe are working aggressively on projects other than solar power. In this quarter, we have invested in power plants that were already in operation.Private EquityAUM for Mirai Creation Fund III as of March-end was 51.5 billion yen. 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 profitabilityStabilityFund performance generates significant income(performance fees)Ongoing long-term contracts generate stable income(Real Assets, Private Equity)JPY1,021.0 billionJapanese EquityOneAsiaJPY105.0 billionJPY256.4 billionRealAssetsPrivate EquityJPY173.1billionPlease be sure to read the appendix attached at the end of this documents.10(1) Japanese Equity Investment Strategy(AUM of JPY 1,021.0 billion as of March 31, 2022)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. 2021Mar. 2022ChangeChange (%)（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 Total78.4611.2193.038.1106.92.5AUM102.3590.6182.725.1117.92.2+23.8-20.6-10.3-12.9+11.0-0.2-9.2+30.5%-3.4%-5.3%-34.1%+10.3%-8.2%-0.9%1,030.21,021.012(2) OneAsia Equity Investment Strategy(AUM of JPY 105.0 billion as of March 31, 2022)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. 2021Mar. 2022ChangeChange (%)120.813.5134.396.38.7105.0-24.4-4.8-29.2-20.3%-35.6%-21.8%14(3)Real Asset Investment Strategy(AUM of JPY256.4 billion as of March 31, 2022)Japanese EquityOneAsiaReal AssetsPrivate EquityThe above AUM includes AUM related to the real estate investment strategy of approximately 12.6 billion yen. 15Renewable Energy Power Station InvestmentAssets under managementAs of March 31, 2022JPY 243.8 billionNumber of Investments: 32(approx. 600 MW)Number of stations sellingelectricity: 28 (approx. 492 MW)Solar power generationWind power generationBiomass power generation16(4)Private Equity Investment Strategy(AUM of JPY173.1 billion as of March 31, 2022)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 51.5 billion yen as of Match-end 2022.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 EraFundPassing down to the next generation for an entrepreneurial investment philosophy that aims to grow corporate valueWhile maintaining a sound financial baseFurther strengtheningour fund businessCreating New BusinessesEncouraging a corporate culture and entrepreneurial spirit that creates businesses from scratchGrowth sectorsLong-term Excess Cashinvesting some own capitals for creating new values20Growth sectors in Growth sectors in Growth sectors in the new erathe new erathe new eraEnergyEnergyFinTechQuantum Quantum ComputingComputingMedical & HealthcareOther21Return 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 shareTotal Return per share13.2 12.0 10.7 11.0 11.0 10.0 9.0 8.6 7.0 7.0 16.014.012.010.08.06.04.02.00.0FY2017FY2018FY2019FY2020FY2021Ordinary Dividend Payout Ratio (ordinarydividend) on Base EarningsTotal Profit Return Ratio on Base Earnings45.1%55.5%39.1%55.8%50.8%60.5%50.2%50.2%39.3%43.4%(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 (ordinary dividend) on Base Earnings = Total amount of ordinary dividends ÷ Base Earnings(Note 3) Total Profit Return Ratio on Base Earnings = (Total amount of dividends (including commemorative dividend+ share buy-back) ÷ Base Earnings22About Business PortfolioHighNew BusinessOne AsiaPEPrivateEquityGrowth PotentialReal AssetsJapanese EquityLowProfitabilityHighDevelop business areas that has high growth potential in the future, and allocate management resources to increase profitability while increasing the pie chart (AUM).(Note) The size of pie chart shows the image of balance in AUM.23Improve ROEAbout Future Goals< Four Pillars >Japanese EquityOneAsiaRealAssetsPrivate EquityAiming to increase the AUM for these four pillars to 3 trillion yen by March 2026< New Areas >Energy (including hydrogen)HealthcareFinTechQuantum ComputingNew Area■ try out some small but groundbreaking proof of concept projects that have to do with new ways of using hydrogen, and expanding new areas of energy.■Utilizing the knowledgewhich has accumulated through its investments to the further development in medical and healthcare.■ Bring together finance and information technology. We will accumulate small discoveries and support projects that will eventually be leverage to form specific business units. ■ Aiming to build a concrete business with Sigma-I that utilizes quantum annealing for the first time in Japan.24 Changes in AUM and Base Earnings since its Listing AUM at fiscal year-end（100MM JPY）Base Earnings（100MM JPY）FY-end AUMBase Earnings20,00015,00010,0005,000080706050403020100‐10FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21Base Earnings have been recovered to the same level as the record-high back in March 200725 Trends in AUM for the Four Pillars15,356 15,55711,240 11,856 11,2419,615 9,599 9,6196,937FY-end AUM（100MM JPY）18,00016,00014,00012,00010,0008,0006,0004,0002,0000FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021Pravate EquityReal AssetOneAsiaJapanese EquityAUM for Private Equity and Real Asset has been steadily increasing every year26 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 health■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.27[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 March 2022JapaneseEquityOneAsiaJPY1,021.0bnJPY105.0bnReal AssetsPrivateEquityJPY256.4bnPrivate Equity Mirai Creation Fund (2015) Establishes SPARX AI & Technologies Investment(2018) Establishes SPARX Innovation for Future(2020)JPY173.1bnJapaneseEquityOneAsiaReal 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 stability28「Mirairabo – “Laboratory for Creating Future”」Collaboration by SPARX × BenesseIn April 2022, the legal age of adulthood was reduced to 18 and the life plans of Japanese people have become more diverse. As a result, asset formation/asset building learning has been added to the home-economics class at high school in Japan. In response to this change, we, as an independent investment company, strongly felt in need of providing junior high and high school students an understanding of broad financial literacy and investment that will be useful for their future lives and their career selection. Benesse felt the same way as we did and as a result, the collaboration was made. CEO Abe and CIO Fujimura have been supervising seminar・lectures and column/articles ■ HP for Mirairabohttps://blog.benesse.ne.jp/digitalmyvision/mirairabo/29Passing 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.30InformationWe 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/8739SPARX31Company ProfileCompanySPARX Group Co., Ltd.Representative President & CEO Shuhei AbeAddress1-2-70 Konan, Minato, Tokyo, JapanFoundedJuly 1, 1989CapitalizationJPY8,587 million(as of March 31, 2022)Employees173 (as of March 31, 2022)ExchangeTokyo Stock ExchangePrime MarketTicker8739President 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).32Supplementary Materials33＜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. 34Quarterly Trends in Operating RevenueManagement fee rate remains at the high level while management fee balancealso remained strong35Structure of Performance Fees(Related to Equity Investment Fund)Performance Fees are recognized for NAV per share exceeding HWM as of record date for fund36Breakdown of Operating and General Administrative Expenses• Overall personnel expenses decreased due to a decrease in ESOP related fees, which partially offset by higher personnel-related expenses due to an increase in headcount. • Depreciation on fixed assets and other expenses related to office has decreased. （Units: Millions of yen）FY2020Full YearFY2021Full YearYoY change Commissions paid Personnel exp. Travel exp. Property rent Depreciation on fixed assets Advertising exp. Research exp. Other expenses 1,6903,403322912821163206901,6723,21660260195162333618-1.1% -5.5% +88.8%-10.7% -30.8% +40.1%+4.2%-10.5% Entrusted business expenses 1,1191,058-5.4% Total: Operating and general administrative expenses7,9467,578-4.6% Ordinary expenses4,8484,762-1.8% (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.37Quarterly 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 expansion38Quarterly 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.39As of March 2022 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.Mostly seed money to funds that the Company managesCash andCash Equivalent19,199Receivables etc.　2,985Tangible&intangibleAssets 798Investment Securities12,155Other Assets　2,004(Units: Millions of yen)Interest-Bearing Debt9,000Other Liabilities　3,817Net Assets24,324Equity Ratio65.5%Total Assets　37,141Liabilities ＆ Net Assets　37,14140As of Mar. 2022 Consolidated Balance Sheet (2)(Units: Millions of yen）Mar. 2021Mar. 2022YoY changeDecreased due to the investment in seed money, payment of dividends and bonuses, etc. Current assets 　 Cash and cash equivalents 　 Receivables Fixed assets 　 Investment securities Total assetsShort-term loans payableCurrent portion of long-term loans payableLong-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 20,7091,51622,72319,1992,98514,41812,15537,1412,000- 7,0002,24963312,8168,5872,55514,787-3,685 22,244889-817 -735 -175 -27 +207-845 – -5,000 +5,000-1,762 -68 -1,893 – – +1,671-135 +1,535-626 1,0481,188+14023,27624,324+1,048Increased 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 :＋JPY 4,070MMCumulative 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.41Primary 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 RNMS16.014.012.010.08.06.04.02.00.07.06.05.04.03.02.01.00.0799189919991000210022002300240025002600270028002900201021102210231024102510261027102810291020202120200021002200230024002500260027002800290020102110221023102410251026102710281029102020212022202（Annualized Return）（Annualized Return）Japanese equity active long-only investment strategy10.90%Reference IndexTOPIX (Dividendincluded)Japanese equity mid & smallcap investment strategyReference Index Reference IndexMeasurement Period Reference IndexMeasurement PeriodExcess ReturnVolatility of CompositeReturn (Annualized)Excess ReturnVolatility of CompositeReturn (Annualized)2.91%7.99%1997/5〜2022/320.08%7.71%4.66%3.05%※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.※Performance is in Japanese Yen and is shown gross of fees.Source: SPARX Group (as of March 31, 2022)Russell/NomuraMid-Small CapIndex2000/1〜2022/317.64%42Primary 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 strategyReference IndexTOPIX (Dividendincluded)Japanese equity strategicinvestment strategyReference Index（Annualized Return） Reference IndexMeasurement Period Reference IndexMeasurement PeriodExcess ReturnVolatility of CompositeReturn (Annualized)※Performance is in Japanese Yen and is shown net of fees.Be sure to read the additional materials appended to the end of this presentation.Excess ReturnVolatility of CompositeReturn (Annualized)※Performance is in Japanese Yen and is shown gross of fees.Source: SPARX Group (as of March 31, 2022)432000/6〜2022/37.58%TOPIX (Dividendincluded)1999/7〜2022/319.76%4.42%2.79%1.63%9.75%3.04%6.71%44This 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.45About 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 2.057% 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 Association46- 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)47