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UBP alts fund targets Japan companies

The strategy will take short positions on poorly governed companies.

Union Bancaire Privée (UBP) has launched an alternative Ucits product that will focus on Japan equities, according to a statement from the firm. It did not name the strategy, however.

The strategy, which is managed by Tokyo-based portfolio manager Zuhair Khan, will be available to accredited investors in Singapore.

The Luxembourg-domiciled fund is also available to qualified investors in most European countries, according to Cédric Le Berre, investment specialist at UBP.

“This is our first corporate governance-focused strategy in Singapore and we do not have similar strategies for Asian markets yet. In Singapore, given the sophistication of the accredited investor base, corporate governance is increasingly gaining in importance,” Le Berre told FSA.

The fund will have a focus on individual companies’ corporate governance and will initially look at Japan’s 500 largest stocks. It will take long positions on 25-35 companies that have good corporate governance and will be taking short positions on 50-70 poorly governed companies, according to the statement.

The statement also noted that while governance will be the primary stock-picking decision, it will take into account each company’s fundamentals and valuation when making the final selection. Corporate governance metrics include the company’s board structure, shareholder alignment and strong oversight by independent directors.

“Governance is key, and ESG investing is growing in importance among all types of investors across the globe. We believe that in Japan, companies with good or improving governance also have a greater chance of achieving best-in-class standards in the social and environmental dimensions,” Khan said in the statement.

The launch of the fund follows after the bank rolled out an impact fund focusing on emerging market equities, which is available to accredited investors in Singapore.

Corporate governance in Japan

The firm believes that Japanese companies show a strong correlation between stock market performance and the quality of their governance. Since 2014, a raft of reforms designed to reinforce governance at Japanese companies has created many opportunities for companies that best adapt to regulatory developments as opposed to those that have difficulties doing so, according to the statement.

Corporate governance in Japan has improved in recent years, as its government introduced a stewardship code and a corporate governance code in 2016 in a move to better protect shareholder interests. For example, the adoption of the stewardship code was expected to improve dividend return policies.

However, Taizo Ishida, San Francisco-based portfolio manager at Matthews Asia told FSA previously that he thinks that there is still more room for improvement, especially with dividend payouts.

“On average, the payout rate is still low – at around 30% – which is lower than the payout in OECD countries or even some emerging markets.

“While governance is improving, adoption is not that fast, especially for the larger companies,” he added. According to him, some companies still have no female board members and only a few have added external directors to their board.

Part of Mark Allen.