Dalton Japan Long Only UCITS Fund

Dalton Japan Long Only Strategy Overview

The Dalton Japan Long Only UCITS Fund’s (the “Sub-Fund”) investment objective is to generate an annualized net performance higher than that of its benchmark, the MSCI Daily Total Return Net Japan Index, over a recommended 5-year minimum holding period.

Dalton Investments INC. (“Dalton”), a seasoned asset manager based out of Santa Monica with significant experience investing in Japan, has been appointed delegated investment manager. Dalton (approved by the U.S. SEC, U.S. CFTC/NFA and Japan FSA) currently manages $2.9bn in assets (as of 31 March 2022). Dalton is also a signatory of the UN-PRI and Climate Action 100+.

The Fund invests its assets in equities with a primary exposure to the Japanese market, across all sectors and industries. The Fund will not take physical short positions.

Through this Fund, investors will be exposed to Dalton’s corporate engagement in Japan.

  • Long-term investment perspective following the precepts of “value investing”
  • Strive for disciplined bottom-up value approach
  • On-the-ground local research teams provide in-depth market analysis and global perspective
  • Exposure to “owner operated businesses” with market caps in excess of $0.5bn
  • Seeking companies managed by teams which are willing to share the wealth with minority investors (“alignment of interest”)
  • No leverage allowed, maximum net long exposure of the Fund limited to 100% of the Fund’s NAV

Performance as of 24/11/2022

Download

NAV MTD YTD LTD
1,281.49€ 7.15% -4.68% 28.15%

powered by Advanced iFrame free. Get the Pro version on CodeCanyon.

Past performance is not an indicator of future performance.

Details

Strategy
  • Long Only Japanese Equity
Benchmark
  • The benchmark is the MSCI Daily Total Return Net Japan Index (MSCI Japan EUR, symbol: MSDEJNN / MSCI Japan 100% Hedged to EUR, symbol: MXJPHEUR) compiled by MSCI Inc, which is a total return (dividends reinvested), free float-adjusted, capitalization-weighted index that is designed to track the performance of Japanese securities listed on the Tokyo Stock Exchange, Osaka Stock Exchange, JASDAQ and Nagoya Stock Exchange.
Philosophy
  • Long only exposure to Japan equities with a focus on corporate engagement
  • Focus on long-term: Focus on long-term performance rather than short-term market fluctuations to provide room for Dalton’s investments to compound at superior rates over time
  • Understand risk tolerance: Capital preservation is the first priority when Dalton believes that their analysis of current market valuations meets their requirements for a large margin of safety and potential significant upside
  • Dalton’s Asia team adheres to principles of value investing; seeking to invest with significant margins of safety
  • Dalton’s investment team seeks entrepreneurial, companies benefiting from structural changes in Asia. Managements typically have significant stakes in their companies and are willing to share the wealth with minority investors
  • Dalton is strongly convinced that companies with superior ESG practices are symbiotic with their investment philosophy. As such, not only have they become a UN-PRI signatory, they have developed a robust ESG practice, allowing to assign an internal rating to every company considered for investment across a large number of aspects that are expected to participate in the improvement of intrinsic value and further support wealth creation for minority shareholders

Fund Facts

Legal Structure: Sub-Fund of UCITS SICAV
Umbrella Fund: Longchamp SICAV
Investment Manager: Longchamp Asset Management SAS
Delegated Investment Manager: Dalton Investments INC
Domicile: FR
Base Currency: EUR
Dealing Day: Daily
Dealing Deadline (Subscription): 12 midday Paris time 5 Business Days prior to the relevant Dealing Day
Dealing Deadline (Redemption): 12 midday Paris time 5 Business Days prior to the relevant Dealing Day
Settlement Date (Subscription): Within 3 Business Days after the relevant Dealing Day
Settlement Date (Redemption): Within 4 Business Days after the relevant Dealing Day

Key Professionals

James B. Rosenwald III, CFA
Co-chair, Management Committee
Co-founder & Senior Portfolio Manager, Asia Equity

Mr. Rosenwald is a Co-founder of Dalton and the Senior Portfolio Manager for Dalton’s Asian Equities strategies. He is a recognized authority in Pacific Rim investing with more than 30 years of investment experience. He formerly co-managed and founded Rosenwald, Roditi & Company, Ltd., now known as Rovida Asset Management, Ltd., which he established in 1992 with Nicholas Roditi. Mr. Rosenwald advised numerous Soros Group funds between 1992 and 1998. He commenced his investment career with the Grace Family at their securities firm, Sterling Grace & Co.
Mr. Rosenwald holds an MBA from New York University and an AB from Vassar College. He is a CFA charterholder and a director of numerous investment funds. He is a member of the CFA Society of Los Angeles and the CFA Institute, and is an Adjunct Professor of Finance at New York University’s Stern Business School.

Shiro Hayashi
CEO of Dalton Advisory KK
Director of Research, Japan Equity

Mr. Hayashi is the Director of Research for Dalton’s Tokyo research office, Dalton Advisory KK, and has more than 17 years of investment and banking experience. Prior to joining Dalton Advisory KK in 2009, he was an equity analyst at SPARX and also worked as an Investment Banker for JP Morgan.
Mr. Hayashi holds a Masters in Finance from the Graduate School of Keio and a BSc in Policy Management from Keio University.

Fund Share Class Details

   ISIN codeBBG codeInceptionMgmt FeePerf Fee

Seeding (Unhedged) *

SUHEURFR0013321957DJLOSUH FP13.07.20180%25%

Super Institutional (Unhedged)

SI1UHEAEURFR0013456357DJLOSEA FP18.12.20191.25%0%

Super Institutional (Unhedged)

SI1UHGAGBPFR0013456365DJLOSGA FP02.12.20191.25%0%

Super Institutional (Unhedged)

SI1UHUAUSDFR0013456381DJLOSUA FP13.12.20191.25%0%

Super Institutional (Unhedged, Distributing)

SI1UHEDEURFR0013456399DJLOSEI FP-1.25%0%

Super Institutional (Unhedged, Distributing)

SI1UHGD GBPFR0013456407DJLOSGI FP02.12.20191.25%0%

Super Institutional (Hedged)

SI1HEURFR0013456415DJLOSHA FP-1.45%0%

Institutional 1 (Unhedged)

I1UHEURFR0013321965DJLOI1U FP13.07.20201.25%0%

Institutional 1 (Hedged)

I1HEURFR0013321973DJLOI1H FP-1.45% 0%

Institutional 2 (Unhedged)

I2UHEURFR0013321999DJLOI2U FP11.10.20180.50%25%

Institutional 2 (Hedged)

I2HEURFR0014000OR9DJLOI2H FP0.70%25%

Retail (Unhedged)

R1UHEURFR0013413689DJLOD1U FP-2.25%0%

* Reference share classes used to report NAVs, Daily, MTD, YTD and LTD performances.

Extra-Financial Analysis & SFDR Classification

The Sub-Fund meets the classification of an Article 8 fund as it promotes environmental and social characteristics.

The Investment Manager evaluates and integrates certain ESG factors at multiple stages throughout the investment process. This is considered as an important element in contributing towards long-term investment returns and an effective risk-mitigation technique.

The Investment Manager believes its ESG-related research capabilities can help enhance portfolio relative performance, particularly in reducing exposure to countries, industries, and securities with material negative ESG risks. For more details on how ESG factors are integrated into the investment process please refer to http://www.daltoninvestments.com/sustainable-investment-philosophy/.

In accordance with the Taxonomy Regulation, an underlying investment of the Sub-Fund shall be considered as environmentally sustainable where its economic activity: (i) contributes substantially to one or more of the Environmental Objectives; (2) does not significantly harm any of the Environmental Objectives, in accordance with the Taxonomy Regulation; (3) is carried out in compliance with minimum safeguards, prescribed in the Taxonomy Regulation; and (4) complies with technical screening criteria established by the European Commission in accordance with the Taxonomy Regulation. It should be noted that the “do no significant harm” principle applies only to those investments underlying the Sub-Fund that take into account the EU criteria for environmentally sustainable economic activities. The investments underlying the remaining portion of this Sub-Fund do not take into account the EU criteria for environmentally sustainable economic activities.

The Sub-Fund does not presently intend to be invested in investments that contribute to environmentally sustainable economic activities in accordance with the Taxonomy Regulation but may have incidental investment in Taxonomy-aligned investments. Therefore, for the purpose of the Taxonomy Regulation, it should be noted that at any given time, the Sub-Fund may be invested in investments that do not take into account the EU criteria for environmentally sustainable economic activities.

Please refer to the section of the Prospectus entitled “Sustainable Finance Disclosure” for further information.

The Sub-Fund does not have the SRI label.

 

EU Regulatory Technical Standards (“RTS”) Process Documentation

Background

The Sustainable Finance Disclosure Regulation (SFDR) is a European regulation introduced to improve transparency in the market for sustainable investment products, prevent greenwashing and increase transparency around sustainability claims made by financial market participants. The regulations impose comprehensive sustainability disclosure requirements covering various environmental, social & governance (ESG) metrics. The EU introduced the regulatory framework in 2021.

In addition to the SFDR regulations, the European regulatory authorities outlined EU Taxonomy guidelines. These guidelines serve as a classification tool to assist investors in determining whether an economic activity is environmentally sustainable or not. To meet EU Taxonomy alignment, the regulator outlined a series of Regulatory Technical Standards (“RTS”) to determine whether an activity is in line with environmental sustainability. The Taxonomy Regulation lays out six environmental objectives:

  1. climate change mitigation
  2. climate change adaptation
  3. sustainable use and protection of water and marine resources
  4. transition to a circular economy
  5. pollution prevention and control, and
  6. protection and restoration of biodiversity and ecosystems.

 

The regulatory framework also stipulates four conditions that an economic activity must meet to be recognized as EU Taxonomy-aligned:

  1. making a substantial contribution to at least one environmental objective (noted above)
  2. doing no significant harm to any other environmental objective
  3. complying with minimum social safeguards, and
  4. complying with the technical screening criteria.

As part of this process, it is required that SFDR regulated funds must document and make publicly available their approach to assessing the RTS. In addition, the Fund must provide reporting to the regulator concerning the proportion of the Fund’s investments that are EU Taxonomy-aligned and data in relation to a group of Key Performance Indicators (“KPIs”). The KPIs include information on the proportion of an investment portfolio’s turnover, capital expenditure (“CAPEX”) or operating expenditure (“OPEX”) of non-financial companies that are associated with environmentally sustainable economic activities.

The below framework serves to outline Dalton Investments (“Dalton” or “We”) approach to the RTS.

 

Dalton Investments – Regulatory Technical Screen Methodology

As part of Dalton’s integrated approach to environmental, social and governance research, the company also undertakes a series of tests across its portfolio holdings to assess the EU Taxonomy-alignment. You can access the complete details of Dalton’s sustainability policy here.

Dalton performs the following underlying tests to test a company’s alignment to the six environmental objectives. As part of our ESG process integration, Dalton conducts detailed due diligence on each prospective investment’s sustainability practices. This process results in a score being assigned to each investment. The assigned score is based on our assessment of the company’s complete disclosures and any available third-party data. On completion of the review, we assign a rating of A, B, C or D to a prospective investment. Companies that are rated A or B have overall better-quality sustainability practices. In contrast, C-rated companies are of poorer overall quality and D-rated securities are excluded from our investment universe.

Those companies that are assigned a rating of A or B are deemed to meet the criteria of at least one of the six environmental objectives. We conduct further tests for those rated anything else to check whether the company meets the required standards. These tests are outlined below:

  1. Climate Change Mitigation Test

We test to find evidence that the company is aligned with the Paris Agreement. To do this, we examine whether the company has in place at least one of the following:

  1. A carbon emissions target of at least 40% reduction. Over five years, this would indicate at least a 7% reduction in emissions per annum, which is in line with the Paris Agreement
  2. Evidence of at least a 7% reduction in emissions over the past year, or
  3. Evidence of a net zero emissions target.

Under the Paris Agreement, the goal is to keep global warming to no more than 1.5 degrees celsius. To achieve this, emissions will need to be reduced by 45% by 2030 and reach net zero by 2050.

  1. Climate Change Adaptation Test

A test is completed to understand if the company is presenting evidence that it is adapting its processes to account for actual or expected climate change impacts. To validate this, we check public disclosures to validate if a company is a member of the UN Global Compact.

UN Global Compact is the largest corporate sustainability initiative, and to become a member organisation, a company must take an “important, public step to transform our world through principled business.” It is viewed that participation in the UN Global Compact makes a statement about the company’s values. Importantly, it also publicly aligns a company to the UN Sustainable Development Goals, which are an essential tool in the global effort to tackle climate change. More information on the UN Global Compact can be found here.

  1. Sustainable Use and Protection of Water and Marine Resources Test

We analyse whether evidence is present that the company takes steps to protect water and marine resources within its business operations. We test for the presence of a policy for water efficiency using Refinitiv data.

  1. Transition to a Circular Economy Test

We seek evidence that the company has procedures to mitigate waste, policies to manage hazardous waste responsibly and offers recycling programs. We reference check the Refinitiv database for proof of a waste reduction policy or a take back recycling initiative.

  1. Pollution Prevention and Control Test

Dalton conducts a systematic test to confirm the company has externally verified procedures and practices to manage pollution and its environmental footprint. We check for the presence of externally certified working practices compliant with ISO 14001 or ISO 50001.

  1. Protection and Restoration of Biodiversity and Ecosystems Test

We seek evidence that the company has policies concerning biodiversity and protection in place. We reference the Refinitiv database for the presence of a biodiversity impact reduction policy.

 

Provided the company passes at least one of the six environmental objectives, the investment is then subjected to three additional tests to ensure it is EU Taxonomy-aligned.

The following three additional tests are then performed:

  1. Do No Significant Harm Test

In conducting this test, we systematically test the investment against various technical screens. We test to see if the company operates within a sector that is deemed to be materially carbon-emitting, or whether it operates within a controversial industry. Companies are considered to fail the Do No Harm Test if at least one of the following criteria is met:

  1. Operates within the Oil & Gas Drilling, Oil & Gas Equipment & Services, Integrated Oil & Gas, Oil & Gas Exploration & Production, Oil & Gas Refining & Marketing, Oil & Gas Storage & Transportation, Coal & Consumable Fuels, Aerospace & Defense, Casinos & Gaming, or Tobacco Sub-industry group as defined under Global Industry Classification System (“GICS”), or
  2. Flags controversy screens as having exposure to any of tobacco, armaments, anti-personnel mines, gambling, or cluster munitions, as determined by the Refinitiv database.
  1. Minimum Social Safeguards Test

To meet the Minimum Social Safeguards Test, the company must present evidence of at least one of the following practices or policies:

  1. Have in place a published human rights policy, or
  2. Present evidence of alignment to occupational health and safety standards that are accredited by an internationally recognised body, e.g., OHAS 18001 or equivalent, or
  3. Provide evidence that it follows the OECD Guidelines for Multinational Enterprises.
  1. Regulatory Technical Standards Test

In order for our process to meet the requirements of the technical screening criteria, we have ensured the the aforementioned tests meet the criteria as outlined by Article 19 of the REGULATION (EU) 2020/852 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 18 June 2020.

This includes ensuring that the tests for six environmental objectives are quantitatively based and contain thresholds to the extent possible, and otherwise be qualitative. In addition, to ensuring that we discount any prospective investments that are operating within the fossil fuel sectors as per our ‘Do No Harm Test’. In addition, to clarify if the investment meets the regulatory standards test, we ensure either of the following:

  1. The investment is rated A or B through our due diligence efforts, and
    1. Passes the Do No Harm Test
    2. Meets the criteria for the Paris Agreement (as noted in Climate Change Mitigation Test above) OR
  2. Meets at least two of the six environmental tests, and
    1. Passes the Do No Harm Test
    2. Meets the criteria for the Paris Agreement (as noted in Climate Change Mitigation Test above).

You can find more information on the Paris Agreement here.

 

We determine EU Taxonomy alignment if the company passes ALL the following:

  1. Six Environmental Objectives Test
  2. Do No Harm Test
  3. Minimum Social Safeguards Test, and
  4. Regulatory Technical Standards Test

As an essential part of our ongoing reporting requirements, Dalton will provide the following core calculations on a quarterly basis:

  • The percentage of the Fund that is EU Taxonomy aligned
  • The percentage of the Fund capital expenditures (“CAPEX”) that is EU Taxonomy aligned
  • The percentage of the Fund operating expenditures (“OPEX”) that is EU Taxonomy aligned
  • The percentage of the Fund revenues that is EU Taxonomy aligned
  • The percentage of the Fund that is aligned with the Paris Agreement
  • The percentage of the Fund that is aligned to net zero emissions.

For additional information, please feel free to contact Dalton’s investor relations team at investorrelations@daltoninvestments.com.

 

Remuneration Policy

Bonuses to investment staff are ultimately determined by Dalton’s CIO, Jamie Rosenwald, with input and recommendations from Dalton’s Management Committee, which reviews and considers overall performance and firm profitability.

The primary driver of profitability for Dalton is providing clients with attractive risk-adjusted returns and superior client servicing and retention. In this manner, we believe that discretionary bonuses help to align the interest of employees and clients.

At Dalton, fixed salaries are kept at a moderate level, while bonus payments are uncapped, meaning bonuses can potentially be multiple of base salary if the employee is successful. Employees are requested to reinvest 50% of pre-tax bonus into Dalton’s investment funds, further aligning interests with clients. Long-term successful employees have the ability to buy into, or further increase their share in Dalton. It is our hope that this system both aligns investment team members with our clients and locks them into the firm for the long term.

Overview

Dalton Japan Long Only Strategy Overview

The Dalton Japan Long Only UCITS Fund’s (the “Sub-Fund”) investment objective is to generate an annualized net performance higher than that of its benchmark, the MSCI Daily Total Return Net Japan Index, over a recommended 5-year minimum holding period.

Dalton Investments INC. (“Dalton”), a seasoned asset manager based out of Santa Monica with significant experience investing in Japan, has been appointed delegated investment manager. Dalton (approved by the U.S. SEC, U.S. CFTC/NFA and Japan FSA) currently manages $2.9bn in assets (as of 31 March 2022). Dalton is also a signatory of the UN-PRI and Climate Action 100+.

The Fund invests its assets in equities with a primary exposure to the Japanese market, across all sectors and industries. The Fund will not take physical short positions.

Through this Fund, investors will be exposed to Dalton’s corporate engagement in Japan.

  • Long-term investment perspective following the precepts of “value investing”
  • Strive for disciplined bottom-up value approach
  • On-the-ground local research teams provide in-depth market analysis and global perspective
  • Exposure to “owner operated businesses” with market caps in excess of $0.5bn
  • Seeking companies managed by teams which are willing to share the wealth with minority investors (“alignment of interest”)
  • No leverage allowed, maximum net long exposure of the Fund limited to 100% of the Fund’s NAV
Performance

Performance as of 24/11/2022

Download

NAV MTD YTD LTD
1,281.49€ 7.15% -4.68% 28.15%

powered by Advanced iFrame free. Get the Pro version on CodeCanyon.

Past performance is not an indicator of future performance.

Details

Details

Strategy
  • Long Only Japanese Equity
Benchmark
  • The benchmark is the MSCI Daily Total Return Net Japan Index (MSCI Japan EUR, symbol: MSDEJNN / MSCI Japan 100% Hedged to EUR, symbol: MXJPHEUR) compiled by MSCI Inc, which is a total return (dividends reinvested), free float-adjusted, capitalization-weighted index that is designed to track the performance of Japanese securities listed on the Tokyo Stock Exchange, Osaka Stock Exchange, JASDAQ and Nagoya Stock Exchange.
Philosophy
  • Long only exposure to Japan equities with a focus on corporate engagement
  • Focus on long-term: Focus on long-term performance rather than short-term market fluctuations to provide room for Dalton’s investments to compound at superior rates over time
  • Understand risk tolerance: Capital preservation is the first priority when Dalton believes that their analysis of current market valuations meets their requirements for a large margin of safety and potential significant upside
  • Dalton’s Asia team adheres to principles of value investing; seeking to invest with significant margins of safety
  • Dalton’s investment team seeks entrepreneurial, companies benefiting from structural changes in Asia. Managements typically have significant stakes in their companies and are willing to share the wealth with minority investors
  • Dalton is strongly convinced that companies with superior ESG practices are symbiotic with their investment philosophy. As such, not only have they become a UN-PRI signatory, they have developed a robust ESG practice, allowing to assign an internal rating to every company considered for investment across a large number of aspects that are expected to participate in the improvement of intrinsic value and further support wealth creation for minority shareholders
Fund Facts

Fund Facts

Legal Structure: Sub-Fund of UCITS SICAV
Umbrella Fund: Longchamp SICAV
Investment Manager: Longchamp Asset Management SAS
Delegated Investment Manager: Dalton Investments INC
Domicile: FR
Base Currency: EUR
Dealing Day: Daily
Dealing Deadline (Subscription): 12 midday Paris time 5 Business Days prior to the relevant Dealing Day
Dealing Deadline (Redemption): 12 midday Paris time 5 Business Days prior to the relevant Dealing Day
Settlement Date (Subscription): Within 3 Business Days after the relevant Dealing Day
Settlement Date (Redemption): Within 4 Business Days after the relevant Dealing Day
Key Professionals

Key Professionals

James B. Rosenwald III, CFA
Co-chair, Management Committee
Co-founder & Senior Portfolio Manager, Asia Equity

Mr. Rosenwald is a Co-founder of Dalton and the Senior Portfolio Manager for Dalton’s Asian Equities strategies. He is a recognized authority in Pacific Rim investing with more than 30 years of investment experience. He formerly co-managed and founded Rosenwald, Roditi & Company, Ltd., now known as Rovida Asset Management, Ltd., which he established in 1992 with Nicholas Roditi. Mr. Rosenwald advised numerous Soros Group funds between 1992 and 1998. He commenced his investment career with the Grace Family at their securities firm, Sterling Grace & Co.
Mr. Rosenwald holds an MBA from New York University and an AB from Vassar College. He is a CFA charterholder and a director of numerous investment funds. He is a member of the CFA Society of Los Angeles and the CFA Institute, and is an Adjunct Professor of Finance at New York University’s Stern Business School.

Shiro Hayashi
CEO of Dalton Advisory KK
Director of Research, Japan Equity

Mr. Hayashi is the Director of Research for Dalton’s Tokyo research office, Dalton Advisory KK, and has more than 17 years of investment and banking experience. Prior to joining Dalton Advisory KK in 2009, he was an equity analyst at SPARX and also worked as an Investment Banker for JP Morgan.
Mr. Hayashi holds a Masters in Finance from the Graduate School of Keio and a BSc in Policy Management from Keio University.

Shares

Fund Share Class Details

   ISIN codeBBG codeInceptionMgmt FeePerf Fee

Seeding (Unhedged) *

SUHEURFR0013321957DJLOSUH FP13.07.20180%25%

Super Institutional (Unhedged)

SI1UHEAEURFR0013456357DJLOSEA FP18.12.20191.25%0%

Super Institutional (Unhedged)

SI1UHGAGBPFR0013456365DJLOSGA FP02.12.20191.25%0%

Super Institutional (Unhedged)

SI1UHUAUSDFR0013456381DJLOSUA FP13.12.20191.25%0%

Super Institutional (Unhedged, Distributing)

SI1UHEDEURFR0013456399DJLOSEI FP-1.25%0%

Super Institutional (Unhedged, Distributing)

SI1UHGD GBPFR0013456407DJLOSGI FP02.12.20191.25%0%

Super Institutional (Hedged)

SI1HEURFR0013456415DJLOSHA FP-1.45%0%

Institutional 1 (Unhedged)

I1UHEURFR0013321965DJLOI1U FP13.07.20201.25%0%

Institutional 1 (Hedged)

I1HEURFR0013321973DJLOI1H FP-1.45% 0%

Institutional 2 (Unhedged)

I2UHEURFR0013321999DJLOI2U FP11.10.20180.50%25%

Institutional 2 (Hedged)

I2HEURFR0014000OR9DJLOI2H FP0.70%25%

Retail (Unhedged)

R1UHEURFR0013413689DJLOD1U FP-2.25%0%

* Reference share classes used to report NAVs, Daily, MTD, YTD and LTD performances.

Art. 8 SFDR

Extra-Financial Analysis & SFDR Classification

The Sub-Fund meets the classification of an Article 8 fund as it promotes environmental and social characteristics.

The Investment Manager evaluates and integrates certain ESG factors at multiple stages throughout the investment process. This is considered as an important element in contributing towards long-term investment returns and an effective risk-mitigation technique.

The Investment Manager believes its ESG-related research capabilities can help enhance portfolio relative performance, particularly in reducing exposure to countries, industries, and securities with material negative ESG risks. For more details on how ESG factors are integrated into the investment process please refer to http://www.daltoninvestments.com/sustainable-investment-philosophy/.

In accordance with the Taxonomy Regulation, an underlying investment of the Sub-Fund shall be considered as environmentally sustainable where its economic activity: (i) contributes substantially to one or more of the Environmental Objectives; (2) does not significantly harm any of the Environmental Objectives, in accordance with the Taxonomy Regulation; (3) is carried out in compliance with minimum safeguards, prescribed in the Taxonomy Regulation; and (4) complies with technical screening criteria established by the European Commission in accordance with the Taxonomy Regulation. It should be noted that the “do no significant harm” principle applies only to those investments underlying the Sub-Fund that take into account the EU criteria for environmentally sustainable economic activities. The investments underlying the remaining portion of this Sub-Fund do not take into account the EU criteria for environmentally sustainable economic activities.

The Sub-Fund does not presently intend to be invested in investments that contribute to environmentally sustainable economic activities in accordance with the Taxonomy Regulation but may have incidental investment in Taxonomy-aligned investments. Therefore, for the purpose of the Taxonomy Regulation, it should be noted that at any given time, the Sub-Fund may be invested in investments that do not take into account the EU criteria for environmentally sustainable economic activities.

Please refer to the section of the Prospectus entitled “Sustainable Finance Disclosure” for further information.

The Sub-Fund does not have the SRI label.

 

EU Regulatory Technical Standards (“RTS”) Process Documentation

Background

The Sustainable Finance Disclosure Regulation (SFDR) is a European regulation introduced to improve transparency in the market for sustainable investment products, prevent greenwashing and increase transparency around sustainability claims made by financial market participants. The regulations impose comprehensive sustainability disclosure requirements covering various environmental, social & governance (ESG) metrics. The EU introduced the regulatory framework in 2021.

In addition to the SFDR regulations, the European regulatory authorities outlined EU Taxonomy guidelines. These guidelines serve as a classification tool to assist investors in determining whether an economic activity is environmentally sustainable or not. To meet EU Taxonomy alignment, the regulator outlined a series of Regulatory Technical Standards (“RTS”) to determine whether an activity is in line with environmental sustainability. The Taxonomy Regulation lays out six environmental objectives:

  1. climate change mitigation
  2. climate change adaptation
  3. sustainable use and protection of water and marine resources
  4. transition to a circular economy
  5. pollution prevention and control, and
  6. protection and restoration of biodiversity and ecosystems.

 

The regulatory framework also stipulates four conditions that an economic activity must meet to be recognized as EU Taxonomy-aligned:

  1. making a substantial contribution to at least one environmental objective (noted above)
  2. doing no significant harm to any other environmental objective
  3. complying with minimum social safeguards, and
  4. complying with the technical screening criteria.

As part of this process, it is required that SFDR regulated funds must document and make publicly available their approach to assessing the RTS. In addition, the Fund must provide reporting to the regulator concerning the proportion of the Fund’s investments that are EU Taxonomy-aligned and data in relation to a group of Key Performance Indicators (“KPIs”). The KPIs include information on the proportion of an investment portfolio’s turnover, capital expenditure (“CAPEX”) or operating expenditure (“OPEX”) of non-financial companies that are associated with environmentally sustainable economic activities.

The below framework serves to outline Dalton Investments (“Dalton” or “We”) approach to the RTS.

 

Dalton Investments – Regulatory Technical Screen Methodology

As part of Dalton’s integrated approach to environmental, social and governance research, the company also undertakes a series of tests across its portfolio holdings to assess the EU Taxonomy-alignment. You can access the complete details of Dalton’s sustainability policy here.

Dalton performs the following underlying tests to test a company’s alignment to the six environmental objectives. As part of our ESG process integration, Dalton conducts detailed due diligence on each prospective investment’s sustainability practices. This process results in a score being assigned to each investment. The assigned score is based on our assessment of the company’s complete disclosures and any available third-party data. On completion of the review, we assign a rating of A, B, C or D to a prospective investment. Companies that are rated A or B have overall better-quality sustainability practices. In contrast, C-rated companies are of poorer overall quality and D-rated securities are excluded from our investment universe.

Those companies that are assigned a rating of A or B are deemed to meet the criteria of at least one of the six environmental objectives. We conduct further tests for those rated anything else to check whether the company meets the required standards. These tests are outlined below:

  1. Climate Change Mitigation Test

We test to find evidence that the company is aligned with the Paris Agreement. To do this, we examine whether the company has in place at least one of the following:

  1. A carbon emissions target of at least 40% reduction. Over five years, this would indicate at least a 7% reduction in emissions per annum, which is in line with the Paris Agreement
  2. Evidence of at least a 7% reduction in emissions over the past year, or
  3. Evidence of a net zero emissions target.

Under the Paris Agreement, the goal is to keep global warming to no more than 1.5 degrees celsius. To achieve this, emissions will need to be reduced by 45% by 2030 and reach net zero by 2050.

  1. Climate Change Adaptation Test

A test is completed to understand if the company is presenting evidence that it is adapting its processes to account for actual or expected climate change impacts. To validate this, we check public disclosures to validate if a company is a member of the UN Global Compact.

UN Global Compact is the largest corporate sustainability initiative, and to become a member organisation, a company must take an “important, public step to transform our world through principled business.” It is viewed that participation in the UN Global Compact makes a statement about the company’s values. Importantly, it also publicly aligns a company to the UN Sustainable Development Goals, which are an essential tool in the global effort to tackle climate change. More information on the UN Global Compact can be found here.

  1. Sustainable Use and Protection of Water and Marine Resources Test

We analyse whether evidence is present that the company takes steps to protect water and marine resources within its business operations. We test for the presence of a policy for water efficiency using Refinitiv data.

  1. Transition to a Circular Economy Test

We seek evidence that the company has procedures to mitigate waste, policies to manage hazardous waste responsibly and offers recycling programs. We reference check the Refinitiv database for proof of a waste reduction policy or a take back recycling initiative.

  1. Pollution Prevention and Control Test

Dalton conducts a systematic test to confirm the company has externally verified procedures and practices to manage pollution and its environmental footprint. We check for the presence of externally certified working practices compliant with ISO 14001 or ISO 50001.

  1. Protection and Restoration of Biodiversity and Ecosystems Test

We seek evidence that the company has policies concerning biodiversity and protection in place. We reference the Refinitiv database for the presence of a biodiversity impact reduction policy.

 

Provided the company passes at least one of the six environmental objectives, the investment is then subjected to three additional tests to ensure it is EU Taxonomy-aligned.

The following three additional tests are then performed:

  1. Do No Significant Harm Test

In conducting this test, we systematically test the investment against various technical screens. We test to see if the company operates within a sector that is deemed to be materially carbon-emitting, or whether it operates within a controversial industry. Companies are considered to fail the Do No Harm Test if at least one of the following criteria is met:

  1. Operates within the Oil & Gas Drilling, Oil & Gas Equipment & Services, Integrated Oil & Gas, Oil & Gas Exploration & Production, Oil & Gas Refining & Marketing, Oil & Gas Storage & Transportation, Coal & Consumable Fuels, Aerospace & Defense, Casinos & Gaming, or Tobacco Sub-industry group as defined under Global Industry Classification System (“GICS”), or
  2. Flags controversy screens as having exposure to any of tobacco, armaments, anti-personnel mines, gambling, or cluster munitions, as determined by the Refinitiv database.
  1. Minimum Social Safeguards Test

To meet the Minimum Social Safeguards Test, the company must present evidence of at least one of the following practices or policies:

  1. Have in place a published human rights policy, or
  2. Present evidence of alignment to occupational health and safety standards that are accredited by an internationally recognised body, e.g., OHAS 18001 or equivalent, or
  3. Provide evidence that it follows the OECD Guidelines for Multinational Enterprises.
  1. Regulatory Technical Standards Test

In order for our process to meet the requirements of the technical screening criteria, we have ensured the the aforementioned tests meet the criteria as outlined by Article 19 of the REGULATION (EU) 2020/852 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 18 June 2020.

This includes ensuring that the tests for six environmental objectives are quantitatively based and contain thresholds to the extent possible, and otherwise be qualitative. In addition, to ensuring that we discount any prospective investments that are operating within the fossil fuel sectors as per our ‘Do No Harm Test’. In addition, to clarify if the investment meets the regulatory standards test, we ensure either of the following:

  1. The investment is rated A or B through our due diligence efforts, and
    1. Passes the Do No Harm Test
    2. Meets the criteria for the Paris Agreement (as noted in Climate Change Mitigation Test above) OR
  2. Meets at least two of the six environmental tests, and
    1. Passes the Do No Harm Test
    2. Meets the criteria for the Paris Agreement (as noted in Climate Change Mitigation Test above).

You can find more information on the Paris Agreement here.

 

We determine EU Taxonomy alignment if the company passes ALL the following:

  1. Six Environmental Objectives Test
  2. Do No Harm Test
  3. Minimum Social Safeguards Test, and
  4. Regulatory Technical Standards Test

As an essential part of our ongoing reporting requirements, Dalton will provide the following core calculations on a quarterly basis:

  • The percentage of the Fund that is EU Taxonomy aligned
  • The percentage of the Fund capital expenditures (“CAPEX”) that is EU Taxonomy aligned
  • The percentage of the Fund operating expenditures (“OPEX”) that is EU Taxonomy aligned
  • The percentage of the Fund revenues that is EU Taxonomy aligned
  • The percentage of the Fund that is aligned with the Paris Agreement
  • The percentage of the Fund that is aligned to net zero emissions.

For additional information, please feel free to contact Dalton’s investor relations team at investorrelations@daltoninvestments.com.

 

Remuneration Policy

Bonuses to investment staff are ultimately determined by Dalton’s CIO, Jamie Rosenwald, with input and recommendations from Dalton’s Management Committee, which reviews and considers overall performance and firm profitability.

The primary driver of profitability for Dalton is providing clients with attractive risk-adjusted returns and superior client servicing and retention. In this manner, we believe that discretionary bonuses help to align the interest of employees and clients.

At Dalton, fixed salaries are kept at a moderate level, while bonus payments are uncapped, meaning bonuses can potentially be multiple of base salary if the employee is successful. Employees are requested to reinvest 50% of pre-tax bonus into Dalton’s investment funds, further aligning interests with clients. Long-term successful employees have the ability to buy into, or further increase their share in Dalton. It is our hope that this system both aligns investment team members with our clients and locks them into the firm for the long term.