The managers AP4 engages then invest in companies with identified potential for improvement, while actively pursuing corporate governance issues in collaboration with the companies. AP4’s investment mandate with corporate governance in Japan are examples of a good complement to AP4’s other corporate governance tools, to vote at general meetings and conduct dialogues with companies.
In 2014 AP4 invested in a fund that invests in an actively works with a small number of small and medium-sized enterprises in Europe.
AP4’s investment include CapMan Public Market Fund and Zerez Public Market Fund (Zerez), which are managed with a clear focus on active corporate governance.
AP4 has invested in Japanese strategic investments with a focus on corporate governance, TMAM GO Japan Engagement Fund and GO Japan Engagement Consortium. JEF owns shares in about 12-15 Japanese companies with a specific identified potential for increased shareholder value. They work according to a structured process of active governance, which enables monitoring and transparency.
AP4 is also engaged in the GO Japan Engagement Consortium (JEC). Other members of the consortium are TMAM and the English pension funds Railpen (Railway Pension Fund) and USS (University Superannuation Scheme). The consortium conducts, via GO - Japan and TMAM, ownership dialogues with 15-20 major Japanese companies. The work is principally structured in the same way as for JEF, but in contacts with companies it is the names of the consortium members that are presented.
Just as in the JEF, a council of senior Japanese leaders supports JEC. Involvement occurs with companies where members have relatively large ownership stakes. Through active engagement, the aim is to bring about changes within the ESG area, which the fund believes contributes positively to the company's value creation and ultimately to the fund's returns.
The Japanese strategies with a focus on active corporate governance have performed well and made a positive contribution to both total return and active return.
The qualitative improvements achieved to strengthen investor influence are satisfactory. However, the evaluation horizon is still much too short for an investment made with a long-term investment horizon.
Japan is one of the world's largest economies and is also one of the largest countries represented in the MSCI World equity index. Japan is also "far away" and differs substantially from Sweden both culturally and in language. This also affects AP4’s ability to exercise corporate governance. It is difficult for a non-Japanese, who neither knows the language, the social codes nor has the right local networks, to pursue good and effective governance.
Japanese owner code and the corporate governance code in Japan
In Japan, work is in progress to make the Japanese financial markets more transparent and attractive for both Japanese and international investors. In 2014, Japan established a Japanese owner code, Japan’s Stewardship Code. In June 2015, a corporate governance code was introduced. Since AP4 work with Japanese corporate governance, it is obvious to support this positive development.
Governance issues advocated in Japan, and supported by AP4, include the requirement that companies must have at least one board member who is independent of both the board and the company. Today, it is common that the same persons who sit in Japanese boards are the same persons who sit in corporate management. There is also a requirement for companies to be more proactive with their key financial figures, such as having a medium to long-term target for return on equity.