Japanese Stewardship
The Firm adopted Japan’s Stewardship Code and approved the following comply and explain statement as of January 16, 2025.
Los Angeles Capital Management LLC's Statement Regarding the Japan Stewardship Code
1. Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.
Los Angeles Capital defines ‘Stewardship’ as the responsible allocation, management, and oversight of invested capital to create long-term value for clients. The Firm’s stewardship efforts are reflected in the Firm’s quantitative modeling, active ownership and custom solutions.
The Firm’s active ownership activities focus on enhancing disclosure and transparency with the intention of benefiting the Firm’s quantitative modeling process and portfolio returns. This quantitative model process incorporates data related to sustainability characteristics of investee companies as part of its consideration of material financial risks and opportunities.
Los Angeles Capital’s active ownership seeks to promote shareholder value creation and stewardship from three primary vantage points:- Proxy Voting,
- Collaborative Engagement, and
- Global Investor Initiatives.
Details about how the Firm fulfills its stewardship responsibilities, including in the area of Collaborative Engagement, are set forth in the Firm’s Responsible Investing Statement that is available on the Firm’s website together with a list of participating Global Investor Initiatives.
The Firm’s Proxy Voting Policy is available on the Firm’s website. Additional details about voting procedures are available to clients on request. Together, these documents explain how the Firm approaches voting on issues of sustainability. The Firm’s Proxy Policy is reviewed by the Proxy Committee at least annually.
2. Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
The Firm’s Policies (including the Firm’s RI Policy Statement available on the Firm’s website), identify situations that may give rise to a potential or actual conflict of interest and call for identification, recording, mitigating and testing to help ensure that clients’ interests are protected and placed ahead of the Firm and its employees and affiliates. Identified material conflicts and how they are handled are disclosed in the Firm’s Form ADV Part 2A that is publicly available through the Investment Adviser Public Disclosure website at adviserinfo.sec.gov. Policies on managing conflicts of interest related to proxy voting are set forth in the Firm’s Proxy Voting Policy that is publicly available on the Firm's website.
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.
Los Angeles Capital takes a comprehensive approach to monitoring investee companies through innovative factor modelling, risk management considerations and stewardship, all of which are designed to enhance shareholder value. The Firm’s Dynamic Alpha technology is used to estimate expected returns by measuring each stock’s exposure to a number of fundamental, sector, and country factors and multiplying those exposures by their expected payoff. This quantitative approach is applied throughout the security selection, portfolio construction and trading steps of the portfolio management process so that portfolios are adjusted to changes in market conditions.
The Firm uses an equity risk model to estimate risk, and a portfolio optimization tool to solve for the optimal portfolio. These two tools, combined with the Firm’s Model return estimates and the client’s unique parameters, are structured to provide the required information to identify the optimal portfolio.
As described above under Principle 1, stewardship is approached from three primary vantage points of active ownership: Proxy Voting; Collaborative Engagement and Global Investor Initiatives. Additionally, the Firm has a sustainability risk monitoring process as outlined in its Responsible Investing Policy Statement found on the Firm’s website.
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.
Los Angeles Capital participates in collaborative engagements as an outgrowth of its research efforts and because it believes that greater uniformity and transparency in corporate disclosure practices will provide material, decision-useful financial information essential to making high quality investment decisions in addition to understanding the risks and rewards associated with environmental, social and governance issues. As a quantitative manager, the Firm does not meet with individual investee companies, but rather participates broadly through collaborative engagements initiatives in its own name through various organizations as set forth on the Firm’s website.
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.
Los Angeles Capital’s proxy voting guidelines are structured to vote in favor of governance structures that will drive performance and create shareholder value. The Firm’s Proxy Voting Policy is available on the Firm’s website and is reviewed at least annually by the Proxy Committee. Additional details about voting procedures are available to clients on request and are outlined in the Firm’s ADV Part 2A that is publicly available. Together, these documents explain how the Firm approaches voting on issues of sustainability.
Where a separate account client requests the Firm to vote proxies related to its holdings, the client may elect to have the Firm’s standard guidelines applied or may request that the Firm apply an alternative standard set of guidelines such as an ESG Policy with a focus on disclosing and mitigating company risk regarding environmental, social or governance issues. The Firm can facilitate certain custom proxy voting guidelines upon client request.
The Firm discloses voting decisions as required by law and to a client regarding such client’s portfolio upon request.
6. Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
As described under Principle 1 above, the Firm seeks to promote long-term value creation and stewardship from three primary vantage points of active ownership: Proxy Voting, Collaborative Engagement and Global Investor Initiatives.
Los Angeles Capital publishes its Proxy Policy and Responsible Investing Policy Statement on its public website, each of which is updated on an annual basis. The Firm provides custom reporting to clients upon request including reporting on sustainability metrics and risks, collaborative engagements and proxy voting reports (where the Firm votes proxies for the client).
A description of how the Firm fulfills its voting responsibilities is set forth in the Firm’s Proxy Policy found on the Firm’s website and described in the Firm’s publicly available Form ADV Part 2A.
7. To contribute positively to the sustainable growth of investee companies, institutional investors should develop skills and resources needed to appropriately engage with the companies and to make proper judgments in fulfilling their stewardship activities based on in-depth knowledge of the investee companies and their business environment and consideration of sustainability consistent with their investment management strategies.
The Firm’s Proxy Committee was established to provide oversight to the proxy voting process for those clients who designate the Firm to vote such client’s proxies.
The Firm’s Responsible Investing Solutions Committee ("RISC") is responsible for managing and overseeing responsible investment activities across the Firm. Members of the RISC participate in and track the progress of the Firm’s Collaborative Engagement initiatives and report on progress to clients where relevant. New Collaborative Engagement initiatives are approved by the Firm’s Board and formally reviewed on an annual basis.
The Firm participates in collaborative engagements as an outgrowth of its research efforts in understanding the risks and rewards associated with Governance and other issues, and because it believes that greater uniformity and transparency in corporate disclosure practices will provide material, decision-useful financial information essential to making high quality investment decisions that may be incorporated in the Firm’s quantitative process. On-going dialogues with vendors and clients further assist in understanding considerations around sustainability.
Los Angeles Capital participates in various initiatives, and engages directly or indirectly with policy makers and standard setters on issues relevant to the investment adviser community, including on issues related to ESG, via participation in industry associations and working groups.
8. Service providers for institutional investors should endeavor to contribute to the enhancement of the functions of the entire investment chain by appropriately providing services for institutional investors to fulfill their stewardship responsibilities.
Los Angeles Capital’s Proxy Policy describes the procedures that the Firm follows when it has responsibility for voting proxies for a client. The Firm has retained Glass, Lewis & Co., LLC (“Glass Lewis”) an unaffiliated third‐party with offices around the globe including in Tokyo, to act as an independent proxy voting agent. Glass Lewis provides proxy analysis, voting recommendations and administration, recordkeeping, and manages other operational and reporting matters of the proxy voting process. If at any time a material conflict arises in connection with the Firm voting proxies for a client account, it would be resolved in the best interest of the client as described in the Proxy Policy.
Legal Disclosures
Los Angeles Capital provides this statement as a general overview of certain investment processes. It has been provided for informational purposes only. It does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or to purchase, shares, units or other interests in investments that may be referred to herein and must not be construed as investment or financial product advice.
Los Angeles Capital has not considered any reader’s financial situation, objective or needs in providing the relevant information.
Los Angeles Capital has taken all reasonable care to ensure that the information contained in this material is accurate at the time of its distribution, no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of such information.