Dialogue 01

Dialogue 01“Good Companies” Achieving Both Economic and Social Benefits to be Deemed Necessary to Society“Good Companies” Achieving Both Economic andSocial Benefits to be Deemed Necessary to Society    

The concept of sustainability management, which entails working to achieve both economic and social benefits,
is gaining attention, and there are those long-term investors that have begun offering their full support to “goodcompanies” that are deemed necessary to society going forward. We arranged a discussion between KazuhiroArai, founder of KAMAKURA INVESTMENT MANAGEMENT CO., LTD., and President Aoi of MARUI GROUP CO.,LTD., on the new potential that can be created through a focus on happiness, helpfulness, and inclusion.

Kazuhiro Arai

Hiroshi Aoi

Director
General Manager, Asset Management Division
KAMAKURA INVESTMENT MANAGEMENT CO., LTD.
(at time of discussion)

President and Representative Director
Representative Executive Officer
MARUI GROUP CO., LTD.

Asset Building and Society Building througha New Type of Finance    Aoi: Prior to starting up KAMAKURA INVESTMENTMANAGEMENT, Mr. Arai, I understand that you were atthe forefront of the financial field. Today, you are still infinance, but on the opposite side of the field. What
prompted you to undertake this drastic change?
Arai: I realized that there was a limit to the extent towhich I could manage assets based on numbers. I previously worked at Barclays Global Investors Ltd. (currentlyBlackRock Japan Co., Ltd.), which was then the world
leader in quantitative investment, which is based onnumbers. There, I treated investment as a science. I
would statistically analyze the performance forecasts ofanalysts from across the globe and use the results ofthese analyses to conduct stock trades in which trillionsof yen would change hands. However, I developed a serious, stress-related illness in 2007, which led to my decision to leave this company. It was then that I encountered
Nihon de Ichiban Taisetsu ni Shitai Kaisha (“TheCompany That Should Be Most Valued in Japan”), a book
written by Koji Sakamoto. This book transformed how I
viewed the world. Up until then, I only saw companies asthings to be traded based on numbers, but this bookmade me realize that companies are driven by people.
Looking to take an approach toward investment that wasthe polar opposite of my previous approach, I started up
KAMAKURA INVESTMENT MANAGEMENT.

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Aoi: So, you could say that you saw both poles of theinvestment world. However, one cannot help but thinkthat investment trusts would not function at the opposite
pole. How do you balance this new approach with theneed for functioning trusts?
Arai: KAMAKURA INVESTMENT MANAGEMENT provides an environment in which we can guarantee thereturns of 4% to 5% that represent the minimal necessary amount for customers’ asset building. The only otherconditions we care about are the social benefits of companies; we seek to invest in good companies that contribute to society. We cannot resolve social issues
without funding companies that are not concerned withprofits. Even if we do not realize profits in the short term,
if we invest in a mixture of companies that have grown tothe point of generating income and companies that are
not yet at this stage, we should be able to guarantee
returns for our customers. This type of investment basedon social benefits is what I wanted to do. I had hoped tobe the type of financier that companies need, and I
therefore committed myself to standing by companies inboth the good times and the bad times.

Entrenchment of Sustainability in Corporate
Culture as the Most Basic Growth Strategy    Aoi: How many companies do you invest in?
Arai: We invest in 63 companies. We invest in companies that remain true to their vision or to their desire toKazuhiro Arai
Director
General Manager, Asset Management Division
KAMAKURA INVESTMENT MANAGEMENT CO., LTD. (at time of discussion)

After working at domestic trust banks and foreign asset management companies,
a serious illness prompted Mr. Kazuhiro Arai to establish KAMAKURA INVESTMENTMANAGEMENT together with four of his colleagues in 2008. Yui 2101, an
investment trust overseen by Mr. Arai, has continued to adhere to its uniquestyle of evaluating companies based on their benefits to society and disclosing
all investees. On July 31, 2018, this trust boasted more than 19,000 private
investors and net assets of over ¥37.2 billion. Mr. Arai has written books on
topics such as how to achieve success through principled investment, the knowledge of work and money held by happy people, and sustainable capitalism.

17Dialogue 01

Dialogue 01“Good Companies” Achieving Both Economic and Social Benefits to be Deemed Necessary to Society

employees, and the opinions of employees are a company’s most important intangible asset. The happiness ofemployees and the atmosphere of a company are factorsthat we are not yet able to quantify. Nonetheless,
KAMAKURA INVESTMENT MANAGEMENT is currently
researching means of tracking these metrics. We hopethat such research will help us ensure that these assets
are evaluated.

I wanted to make a community that is notpreoccupied with money. I see the most fundamental
purpose of financing as bringing joy
to all parties involved.
Kazuhiro Araibe a good company. We have withdrawn investment
from a total of seven companies in the past. The reasonsfor these withdrawals have included acquisitions, delisting, and other formal issues. Other reasons have involved
changes in policies following the appointment of new
managers that made it impossible for us to continue pursuing the social good together with these companies.
Aoi: It is common for Japanese companies to change
their leader once every four years. Changes in leadershipbring changes in management policies, and the new policies can sometimes be 100% different from the priorpolicies. I believe it would be better for companies tokeep the same leader for at least a decade. If not, it will
be impossible to truly root the idea of being a good company or of sustainability within a company.
Arai: I agree completely. This is one of the reasons thatmany of the companies we choose for investment arestill led by their founder or are family businesses.
Aoi: The majority of companies that keep the sameleader over the long term are of this nature. I see this asa serious issue. When thinking about the future, it seems
apparent that other companies will also need to installlong-term leadership if we are to realize a sustainable
society. I recently had the opportunity to speak with anindividual from Marks & Spencer Group plc of the United
Kingdom. This individual stated that sustainability is themost basic growth strategy and that view did not need tochange no matter who managed the company. This commitment to sustainability has entrenched this concept in
the corporate culture of Marks & Spencer throughout its
124-year history.
Arai: It takes a decade or two for a manager to shape thecorporate culture of their company. I think that the restraint

18“Good Companies” Achieving Both Economic and Social Benefits to be Deemed Necessary to Society

Fundamental Purpose of Financing as Bringing Joyfunction of corporate governance should actually bedesigned to ensure that managers and employees areremaining true to the purpose of their company and thatthe appropriate corporate culture is being fostered. Thebelief that it is better to replace managers after short terms
in office may be common, but this belief is mistaken.

Managers’ Resolution to Shape Society through
Their Business as Important Aspect of ESG    Aoi: I think that the evaluation of companies based on
ESG factors is a positive trend.
Arai: The concept of ESG itself is a positive development. However, if we only focus on raising scores using
ESG evaluations, then there is a risk that all companies
will end up becoming the same. Individuality and resolution are of utmost importance to companies. Peoplecannot be inspired by a lack of resolve. Sometimes, mycustomers lodge complaints citing the unclear nature of
a company’s business. When I receive such a complaint,
I go speak with the management of the investee, looking
to see the resolve of managers. I want to see the commitment of management to shape society in a certain way
through their business. If I do not see such resolution,
I will not feel compelled to invest in a company.
Aoi: MARUI GROUP preaches the overarching values ofco-creation and inclusion. Nonetheless, when I asked
several new recruits why they wanted to join theCompany, I was still surprised when all of their answers
involved our commitment to inclusion. A strong message
will attract a strong response. This realization has reaffirmed my commitment going forward.
Arai: The future of a company is decided by its    
Aoi: What type of customers does KAMAKURAINVESTMENT MANAGEMENT serve?
Arai: All of our approximately 19,000 customers have ahigh degree of social awareness and most are in their 30sor 40s. Around 60% of these customers conduct cumulative investments. We have committed ourselves to standing by the companies we invest in, even during when
performance is bad. This resolve was tested by the Great
East Japan Earthquake. After the earthquake, many funds
saw an outflow of capital as investors predicted catastrophic damage to the Japanese stock market. However,
not one of our customers canceled their accounts.
Aoi: If one predicts a downturn in the Japanese stock
market, they will likely immediately sell their holdings.
I find issue with this common practice.
Arai: The reason we focus on investment trusts isbecause I wanted to make a community that is not preoccupied with money. I see the most fundamental purposeof financing as bringing joy to all parties involved. To fulfill this purpose, it is crucial to create a financing schemethat goes beyond a simple business model.

Corporate Growth by Continuously Helping
Customers and Society    
Arai: I have made use of Marui in the past. The Marui oftoday is much different than before.
Aoi: I became president of MARUI GROUP in 2005. At
this time, I looked back at our past to try and ascertain
how the Company had managed to continue growing
over the 70 years since its founding. What came to mind
was customers saying that they had “made use of Marui,”a sentiment I had been hearing since I was a child. They
did not say “I went to Marui” or “I shopped at Marui,” butrather they said “I made use of Marui.” I then came torealize that the core value driving our growth over thepast 70 years was the aspect of Marui that made customers hold this sentiment. Customers’ “I made use of”
translates to “we helped” from the perspective of theCompany. This realization made me recognize that ourstruggling performance back then was a consequenceof Marui’s diminished ability to be of help to customers.
Faced with this wall, I was reminded of our corporate
philosophy, which inspired me to commence management reforms. It is for this reason that what you, Mr. Arai,do and say resonates so much with me.
Arai: My expectations for MARUI GROUP in the future
are very simple. Rather than clinging to the MARUIGROUP of the past, I want you to develop a MARUIGROUP of today. The concept of inclusion that you mentioned will likely be key to accomplishing this objective.
The younger generations are empowered. Accordingly,
if you can attract individuals from these generations, youwill be able to attract anyone. I hope to see you grow
MARUI GROUP into a place where people gather, a basefor social activity.

Customers’ “I made use of” translates to“we helped” from the perspective ofthe Company.
Hiroshi Aoi

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