Japan Investment Adviser Co., Ltd.

The majority of the Group's net sales is derived from the operating lease business (arrangement fees, etc. for Japanese Operating Lease investment products), with aircraft accounting for the largest proportion of underlying assets. A deterioration in the operating environment of the airline industry or changes in the competitive environment directly affect demand for aircraft leasing and investment products, and could have a material impact on the Group's financial position and operating results. Although the Group is pursuing diversification (vessels, containers, Environmental Energy, etc.), the high degree of dependence remains a structural risk.

Lessees of Japanese Operating Lease investment products (airlines, shipping companies, marine transport companies, etc.) operate around the world, and if geopolitical conflicts or infectious disease outbreaks occur, there is a risk that lessees' leasing demand and investors' investment demand will decline. A decline in demand directly leads to a decrease in arrangement fees and administrative entrustment fees received by the Group, affecting its financial position and operating results. A scenario in which the entire airline industry is affected, as occurred during the past COVID-19 pandemic, is envisioned as a typical risk case.

In the operating lease business arranged by the Group, if a lessee such as an airline defaults on lease payments due to the commencement of legal insolvency proceedings, etc., the profitability of the tokumei kumiai (silent partnership) business deteriorates, and investors may incur losses. Losses to investors lead to a decline in investment demand, making it difficult to arrange and sell new deals, thereby reducing the Group's fee income. As the Group is entrusted with SPC administrative services, the credit risk of lessees indirectly affects business continuity.

The Group temporarily acquires and records rights under SPC tokumei kumiai (silent partnership) agreements (product contributions) and assets such as aircraft (advance payments) on the premise of transferring the position to investors; however, if the Group is forced to continue holding these for some reason, it may become difficult to collect arrangement fees or recover the contributions. Furthermore, if the price of the leased property declines, there is a risk that all or part of the contributions will become unrecoverable. These assets are recorded on the consolidated balance sheet, and any impairment in value directly affects the Group's financial position.

Since the operating lease business is transacted mainly in foreign currencies, when the yen appreciates, the Group's financial position and operating results are affected through three channels: (1) a decline in new investment demand due to deterioration in investors' profit and loss, (2) a decline in investors' investment appetite due to a fall in the yen-converted value of foreign-currency-denominated product contributions, and (3) the recognition of valuation losses on foreign-currency-denominated assets and liabilities temporarily held by the Group. Although hedging measures have been implemented, it may be difficult to completely avoid the impact depending on the timing of exchange rate fluctuations.

The Group procures funds for the temporary acquisition of product contributions from its own funds and from borrowings from financial institutions (including overdrafts and commitment lines). If fundraising becomes difficult due to a deterioration in economic conditions or business performance, there is a risk that the smooth arrangement of deals will be halted. In addition, loan agreements include financial covenants such as maintaining net assets at 75% or more of the level in the immediately preceding period and not recording an ordinary loss (or operating loss), and if performance deteriorates, an obligation for early repayment of borrowings may arise. If these factors overlap, there is a risk of developing into a liquidity crisis.

The subsidiaries JLPS (a Type II Financial Instruments Business Operator) and JIA Securities (a Type I and Type II Financial Instruments Business Operator) conduct business under the Financial Instruments and Exchange Act, while JIA Trust (a discretionary investment trust company) conducts business under the Trust Business Act. If any of these entities has its registration revoked or receives a business suspension order due to a violation of laws or regulations, there is a risk that the core operations of the Group's operating lease business and real estate business will be halted. In addition, if tax and accounting laws and regulations related to the operating lease business are revised, investors' tax-saving benefits may change, potentially reducing investment appetite. While the Group is not currently aware of any facts that would constitute grounds for revocation, changes in the regulatory environment remain a persistent risk.

The Group conducts the Private Equity Investment Business with the aim of achieving capital gains through value-up initiatives; however, if legal violations or unrecognized liabilities that were not discovered during pre-investment due diligence come to light, or if an investee's performance falls short of expectations, it may become difficult to recover the invested funds. Furthermore, the application of impairment accounting to operational investment securities could have a direct adverse impact on the Group's financial position and operating results. While due diligence is conducted to reduce risk, it is difficult to completely eliminate post-investment risk.

Naoto Shiraiwa, Representative Director and President, has served as the top executive since the Company's founding and plays a central role in determining management policies and strategies as well as promoting sales initiatives. If any unforeseen event were to occur to him, or if he were to step down, this could have a material impact on business continuity. As countermeasures, the Group is delegating authority to directors, executive officers, and department heads responsible for each business area, and is developing a succession plan through the Nomination and Compensation Advisory Committee; however, resolving this dependence will take time.

While the Group works to reduce cybersecurity risk through the establishment of regulations and security management measures, if information leakage or the shutdown of information systems occurs due to the evolution of threats, this could affect the Group's financial position and operating results through direct costs and reputational damage. In addition, since the Group operates globally across multiple domestic locations and overseas group companies, there is a risk of prolonged business disruption due to natural disasters such as earthquakes, tsunamis, and typhoons, as well as communication failures and the spread of infectious diseases. Although measures such as establishing emergency response regulations and introducing safety confirmation systems have been implemented, complete avoidance is difficult.