EMP Roundtable: The Current Status and Potential of EMP in Cultivating the Next Generation of Asset Managers (Part 2)

Participants:

• Mr. Hiroyuki Nomura, Operating Officer, Senior General Manager, Investment Planning Department, Japan Post Insurance Co., Ltd. (middle left in the picture);

• Ms. Emi Onozuka, Outside Director, Daiwa Asset Management Co., Ltd. (right);

• Mr. Jun Shiota, Senior Managing Director, Deputy Head of Fund Management and Head of Stewardship & ESG, Fund Management Division, Daiwa Asset Management Co., Ltd. (left);

• Mr. Yu Shimizu, Representative Director & CIO, Cadira Capital Management Co., Ltd. (middle right)

Note: This is an English translation of the original Japanese version. In the event of any discrepancy or inconsistency between the Japanese version and its English translation, the Japanese version shall prevail.

Cadira Capital Management Co., Ltd. ("Cadira Capital Management") received the first mandate under the Emerging Managers Program ("EMP") by JAPAN POST INSURANCE Co., Ltd. (hereinafter “Japan Post Insurance”), Daiwa Securities Group Inc. (hereinafter “Daiwa Securities Group”), and Daiwa Asset Management Co., Ltd. (hereinafter “Daiwa Asset Management”), a consolidated subsidiary of Daiwa Securities Group. In light of this, we invited Mr. Nomura from Japan Post Insurance, the owner of this EMP, and Mr. Shiota from Daiwa Asset Management to discuss the program. The discussion was moderated by Ms. Onozuka, Outside Director at Daiwa Asset Management.

—Continued from Part 1—

Differentiating Features of the Project

— Ms. Onozuka: I’d now like to ask about how this EMP program differentiates itself from others, especially as the number of such initiatives is expected to grow in the future.

Mr. Shiota: What’s unique about this program is that it’s a joint initiative between two of Japan’s leading institutions: Japan Post Insurance, one of the country’s top asset owners, and Daiwa Asset Management, one of its top asset managers. This "partnership" is a major strength and enhances the program’s presence. As Mr. Nomura also mentioned earlier, many investors might feel reassured by the fact that “if Japan Post Insurance is investing, it must be trustworthy.” That sense of trust gives us a significant advantage and is reassuring for us as well.

Another key factor is our access to a wide range of investors—retail, institutional, and international—through the broad distribution channels of the Daiwa Securities Group as a whole. Daiwa Asset Management itself has years of experience and a strong track record in the investment trust business, along with deep expertise in product structuring. For example, if we identify a promising manager but are unsure of the optimal fund format, we can flexibly consider options like FoFs that invests in UCITS or advisory-based fund structures. This flexibility is born from our extensive experience in product development.

The combination of trust from working with Japan Post Insurance, strong distribution capabilities across the group, and Daiwa Asset Management’s product structuring and due diligence capabilities makes this program uniquely differentiated from other managers’ initiatives.

Ms. Onozuka: Thank you. The discussion on product structuring is especially important. When people think of "investment," they tend to imagine stocks, bonds, or currencies which are the investment targets themselves. But in reality, the design of the "products" or "vehicles" that give access to these targets is critically important. The skill set required to determine the optimal structure for such products is well developed within asset management firms, and that’s where Daiwa Asset Management plays a vital role within the group.

Mr. Shiota: Exactly. At Daiwa Asset Management, we don’t just manage our own funds; we also handle funds that involve other asset managers as advisors and FoFs. Thanks to our extensive experience handling various fund structures, we can work with a broad range of managers and structure products that match their individual styles. Our long history of developing diverse investment trust models is a significant advantage.

On Selecting Emerging Managers (EMs)

— Ms. Onozuka: Let’s move into the core of the program. In EMP, EMs first appear at a showcase, after which the selection process begins. From your perspective as program operators, what criteria do you use to select EMs? Also, could you share what led to the selection of Cadira Capital Management?

Mr. Nomura: In EMP, discernment is key. This time we’re investing in an EM with no past track record, which requires a very serious commitment from the asset owner side as well. Honestly, it’s a major challenge to decide to invest in a firm before anything has actually started. If a firm were to falter right after launch, it would affect the credibility of the entire EMP.

Unlike listed equities, there’s little information or data available on EMs. That’s why candid dialogue is so important. You really only begin to understand questions like “What is this firm aiming for?” or “What makes them unique?” after engaging in deep conversations. A critical factor for us was whether they had investment targets or perspectives we’d never encountered before. If they were simply following established styles, EMP wouldn’t be meaningful. We wanted EMs that could breathe new life into underfunded areas of the Japanese market.

EMs also tend to be small teams, so we needed to ask, “Can we truly entrust this person?” and “Can we grow together?” Rather than treating it as outsourcing, we looked for a sense of partnership—like bringing someone into our own team. Once we felt confident through in-depth conversations that “we can do this together,” we knew we could navigate any future bumps in the road.

So, rather than relying on formalized scoring systems, we focused on engaging with each candidate directly. We prioritized whether they could challenge new areas and drive change. We strongly felt Cadira Capital Management had that potential.

Mr. Shiota: In EMP, the due diligence process is what we value most. Candidate firms might be found through public platforms like EM Showcase or through other channels. In all cases, we begin with basic checks: management structure, investment framework, and the state of middle and back office functions. This is the same lens we apply when selecting sub-advisors outside of EMP.

Beyond that, what we look for is whether their investment strategy or business model has a “spark.” Not just whether it's relatively better, but whether it’s absolutely unique and interesting. In other words, does injecting capital into the firm suggest potential for further growth? We’re not interested in whether the firm complements our own strategy—we’re looking for firms with distinctiveness and solid philosophical grounding. Another big factor is key person risk. Since many EMs are small, it’s critical to understand who is managing the money and whether they can be counted on over the long term. In the case of Cadira Capital Management, we were able to address concerns about key person risk through extensive discussions with President Mr. Sakamoto and CIO Mr. Shimizu. Their strong commitment and clear long-term vision gave us great confidence.

Cadira Capital Management also stood out from a sustainability perspective. About 10 years ago, while I was an analyst at Daiwa Asset Management, I worked on how ESG factors could be incorporated into company valuation. For example, we built models that adjusted discount rates based on ESG scores and tried to integrate “invisible value” like governance into traditional fundamental analysis. That framework is still part of our Japan equity strategy today. When I read the Progress Report of Cadira Capital Managment, I felt their “Impact Integrated Value” approach was very much aligned with this thinking. The fact that Mr. Shimizu has remained true to his investment philosophy even after becoming independent also increased our trust.

Ultimately, their uniqueness, philosophy, and consistency came through clearly during DD, which was a major reason we selected them. Within EMP, Cadira Capital Management is a very promising EM that we believe will continue to grow.

Mr. Shimizu: Overall, I felt the entire process was fair and had a strong "nurturing" attitude. For a small, newly founded asset manager like us, due diligence is not just about being selected or not—it’s a critical test of our entire operational setup. Having a structure in place that could handle DD properly was crucial.

At Cadira Capital Management, I handle the investment side while our President Kaz Sakamoto focuses on business development and operations. This clear division of responsibilities allowed us to go through the process without affecting our investment work, which I believe was positively received from an organizational standpoint. Also, even before EMP began, we had some exchanges with Japan Post Insurance around impact investing, and had also previously met with Daiwa Securities Group. So I believe there was already some understanding of our thinking and stance. Both institutions have strong values around sustainability and impact, which deeply resonated with us. We were genuinely eager to work with them, so being able to proceed under the EMP framework felt both fortunate and natural. Of course, we were on the side of being evaluated, but we had also received multiple inquiries from other players. That this project moved ahead and progressed smoothly holds significant meaning for us.

As for the DD process itself, I honestly saw it as a learning experience. Neither Kaz Sakamoto nor I had much prior experience working with Japanese institutional investors, so learning how we would be evaluated and what would be emphasized was incredibly valuable. Also, the fact that the process was framed with a "nurturing" attitude was very impressive and appreciated. DD often feels one-sided, like an exam, but this time it was very conversational. We were able to ask frankly, “What exactly is being asked of us?” and prepare accordingly with clarity. It also gave us a chance to reaffirm our own ideas and operational setup. It was a very fair and constructive process—something that, for a startup, is extremely valuable.

Mr. Nomura: We had met Cadira Capital Management in various settings over time, and they’ve always struck me as very active in the broader ecosystem. Despite being an EM, they already have a certain presence and are gradually building name recognition in the market. It reminded me just how important that steady, daily activity is.

As an allocator, one of the most important factors for us is whether the EM, with their small team, is truly committed to investment. There may be times when investors want to make requests like “Could you customize things for us?”—but we hope EMs won’t bend too much to those demands at the cost of their original investment philosophy.

It’s also our responsibility to create an environment where EMs can stay focused on what they believe in. To help managers perform at their best, we must avoid adding excessive administrative burdens. That’s why we plan to keep closely monitoring, along with Daiwa Asset Management, whether the EM's structure continues to allow them to concentrate on investing—even as more investors come on board.

— Ms. Onozuka: On the flip side, do you have any feedback on aspects of the EMP DD process that could be improved? For instance, was there any point where you thought, “It would’ve been better if this had been clearer from the start”?

Mr. Shimizu: I think one area that could be improved is scheduling. Although the process ended up wrapping up at the end of March as planned, it only really got underway in mid-December, which made for a tight timeline. If the overall picture had been shared earlier, we could’ve had more time to prepare.

Also, since many parties were involved, we sometimes received the same questions multiple times through different channels. That’s understandable, but a bit of advance coordination might have made things more efficient. While there weren’t any specific issues raised about our investment side, I do think there’s room to improve the DD process design.

Ms. Onozuka: That’s true. It’s a real challenge to bring together large asset owners with nimble emerging managers like this. But that’s exactly where the value and excitement lie. Mr. Shimizu and Mr. Sakamoto both come from relatively large firms, so I think you were able to adapt flexibly—but not all EMs will be like that. Some may be unfamiliar with large organizations’ ways of working or even push back against them. That’s why I believe mutual respect for each party’s circumstances will be key to further elevating EMP’s value. If we can incorporate that mindset into the very design of the program, it will become even more accessible for more EMs.

— Ms. Onozuka: What about improvements from the EMP organizers’ side—anything you’d like to do differently next time?

Mr. Shiota: The tight schedule was definitely a challenge. But being the first round, I think there’s still room to improve in terms of project management. Also, the DD team handling the review for Cadira Capital Management had mainly dealt with large overseas asset managers in the past, where key person risk isn’t usually a big issue. So approaching an EM required a different mindset, which made things more complex.

That said, we were able to have deep discussions with both Mr. Shimizu and Mr. Sakamoto, which I think helped us properly address that risk. There’s definitely a specific DD approach needed for EMs, and we’ll need to continue building expertise in that area.

Mr. Nomura: Looking ahead, what I hope for most is that five years from now, we can point to a case and say, “That EMP investment was the catalyst for all this.” We want to find EMs investing in areas that aren’t yet getting attention, and in time have people say, “That was the turning point.” It’s incredibly difficult—but also exciting. That’s why we need to keep refining our own discernment as we meet with more EMs, and EMs should confidently communicate their uniqueness.

Mr. Nomura: How did the DD process feel from your perspective? Did it reveal new insights or feel inefficient? I’d love your honest take.

Mr. Shimizu: The process of answering questions itself deepened our thinking. We have no problem being evaluated. We’ve even had cases where we answered foreign investor DDs thoroughly but didn’t get the investment in the end.

Mr. Nomura: Do you find any differences between Japan and overseas DD processes?

Mr. Shimizu: In Europe, the sustainability-related questions can be very detailed. Compared to that, Japanese DD is still… honestly, a bit more lenient.

Mr. Nomura: You mean, a little soft? (laughs)

Everyone: (laughs)

Mr. Shimizu: In some ways, yes. One notable aspect of this DD, however, was the reference checks. They did background research based on past work relationships, which was a new and refreshing experience for us. It made me think, “This is something that should be done more.”

Mr. Shiota: Yes, once you begin focusing on key person risk, it becomes similar to hiring. Just like you’d check references when hiring someone, understanding a manager’s reputation becomes especially important for EMs.

Mr. Nomura: It really does feel like we’re working together. When you’re asking someone to manage money as if they’re part of your own company, it naturally creates a sense of accountability—like, “I can’t afford to mess this up.” That’s something unique to this kind of relationship.

Mr. Shiota: We don’t get many opportunities to conduct DD on Japanese equity managers, so this was almost a first for us. Through this experience, we were able to bring in Japanese equity professionals and build stronger internal capabilities around DD. I feel it really helped upgrade our organization.

Mr. Nomura: There’s real value in DD itself. It’s not a waste of time—it’s a positive. We hope that five years from now, we’ll say, “We’re glad we did that.” Of course it takes time and the investment size may be small, but it’s still meaningful in ways beyond money. We believe this framework has tremendous value in discovering new growth areas and making Japan stronger.

“Anti-ESG” Trends and "Impact-Integrated Investing"

— Ms. Onozuka: Since sustainability and ESG have come up, let me ask—around the world, some regions are seeing backlash against ESG, and even avoiding using the term altogether. Personally, I believe Japan should aim to be a market that integrates non-financial perspectives and social impact into investing as part of its "Asset Management Nation" vision. In that context, I’d love to hear a final thought from each of you about how values of Cadira Capital Management aligned with that vision and what that means.

Mr. Nomura: I think this initiative really reflects Japan’s unique position. The U.S. has its own polarized debates, and Europe is highly advanced on environmental issues. But Japan has its own set of social challenges—like how to maintain growth in the face of population decline. That’s precisely where we need to create “impact.” Rather than reacting to the ESG label, we should focus on addressing Japan’s specific issues. In that sense, Japan offers intriguing opportunities from a diversification perspective. While these themes may be harder for international investors to grasp, if we can communicate the context of solving social problems, I believe the potential is huge.

Mr. Shiota: I completely agree. While the public perception of ESG and sustainability may be fluctuating, we at Daiwa Asset Management remain firmly committed. Our competitive edge lies in our ability to “see and assess the invisible,” and that’s also reflected in how we engage with companies. Demonstrating the coexistence of impact and economic return is crucial—and we hope to do that together with Cadira Capital Management. I’d love to see them build a brand where “impact-integrated investing in Japanese equities means Cadira Capital Management.” We’re fully committed to supporting that vision.

Ms. Onozuka: I think Cadira Capital Management was recognized not for traditional impact investing, but for integrating impact within fundamental analysis—a unique approach. It’s both novel and significant. How do you view being recognized for this distinct approach?

Mr. Shimizu: Our concept of "Impact Integrated Value," which integrates impact into company valuation, is similar to what GPIF recently announced as “impact-integrated investing.” As you noted, this differs from traditional impact investing. Japan Post Insurance is promoting the “Impact ‘K’ Project,” an impact investing certification framework, and to traditional impact managers, being selected for that project is aspirational. While our approach may not align with that framework per se, being recognized within the EMP program for our impact-integration approach is something we’re genuinely grateful for. Also, being part of a long-standing sustainability finance tradition at Daiwa Securities Group—such as their early microfinance bond initiatives—is a true honor.

Looking ahead, we hope to build a unique global presence so that people recognize “impact-integrated investing means Cadira Capital Management.” Especially now, when sustainability debates are in flux, I believe Japan’s steady, grounded approach can set a powerful example.

Future of EMP and Broader Impact on Japan’s Asset Management Industry

— Ms. Onozuka: Thank you. That really wraps up this discussion well. Any closing thoughts or messages for readers?

Mr. Shiota: The program is just beginning, but I truly feel it was the right decision to start with Cadira Capital Management. As gatekeepers, we want to continuously evolve this initiative, potentially bringing in outside capital as well. EMP has led to the emergence of distinct managers overseas, and we want to foster more firms like Cadira Capital Management in Japan—to contribute to greater diversity in Japanese asset management.

Mr. Nomura: I believe revitalizing Japan’s financial industry, encouraging household participation in investment, and fostering innovation can create a virtuous cycle that strengthens the country. As I’ve said before, I want to help create a future where we can say, “That investment five years ago led to this.” We, as asset owners, want to keep making responsible investment decisions and communicating our vision clearly.

Mr. Shimizu: Recently, we’ve been getting more inquiries from people looking to start their own firms. I think EMP gave people the feeling that “maybe I can do this too.” If we can serve as a kind of “older brother” to the next generation of EMs, that would help activate the entire industry—and we’d be proud to play that role.

Ms. Onozuka: Having worked in asset management since 2000, I remember a time when the industry felt stagnant. When I became an EM, fundraising was tough, and programs like this didn’t exist. That’s why I believe EMP signals a major shift. Even smaller firms can be accepted and trusted if they manage responsibly. This program has shown us a world where “everyone is different, and that’s okay.” If that spreads, the future of Japan’s asset management industry could be incredibly bright.