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Nikko Asset Management Co., Ltd. (“Nikko AM”) has put in place a policy on handling differences in NAV (materiality policy) to improve and enhance the level of protection provided to beneficiaries. The policy sets forth requirements including the maintenance of an appropriate threshold for NAV errors and other such occurrences. It is also intended to ensure that necessary action can be taken in line with pre-determined handling methods in view of considerations such as customer protection requirements. The policy is set forth in internal regulations* formulated by Nikko AM in line with stipulations in the Japan Financial Services Agency’s Comprehensive Guidelines for Supervision of Financial Instruments Business Operators and the Japan Investment Trusts Association’s Policy on Calculations of Investment Trust NAV by Single Trustees.

Nikko AM has publicly released the below “Materiality Policy” to ensure that the investors and beneficiaries who use Nikko AM’s funds understand the above-mentioned policy on handling differences in NAV (materiality policy).

*The internal regulations on handling differences in NAV (materiality policy) include the below stipulations. Nikko AM determined their content based on due steps with management involvement.

  1. A standard threshold for NAV errors.
    Nikko AM has stipulated 50 basis points as its standard threshold for NAV errors. It judges this level to be appropriate in consideration of the need to protect investors and beneficiaries, substantive economic rationality, as well as other considerations including Nikko AM’s duty of care as a good manager and its fiduciary duty. Nikko AM also referred to overseas laws, regulations, and common practice in determining the threshold.

  2. Responses to NAV errors that are at, exceeding or below the threshold level.
    If Nikko AM detects a NAV error that equals or exceeds the threshold level, in principle, it compensates for losses experienced by investors and beneficiaries who conducted subscriptions or redemptions during the time of the error. In principle, Nikko AM also offsets the losses attributable to the subscriptions or redemptions conducted by investors and beneficiaries during the applicable period and compensates for the resulting losses to trust assets.

    In the case of errors that are below the threshold, in principle, Nikko AM offsets losses attributable to the subscriptions or redemptions conducted by investors and beneficiaries during the time the error occurred and compensates for the resulting losses to trust assets.

  3. Nikko AM has stipulated a requirement to take proper measures, such as reversing losses to trust assets and beneficiaries, as soon as possible if a NAV error attributable to Nikko AM has been detected, in accordance with the level of the error. Nikko AM also reviews its NAV calculation process as necessary.

  4. The method for processing NAV errors if they occur in Japan-domiciled funds launched and managed by Nikko AM.

  5. A stipulation that Nikko AM is to act fairly and properly based on its duty of care as a good manager as well as its fiduciary duty towards investors and beneficiaries.