Japan Asia Investment Company, Ltd.

In private equity investments and listed company equity investments, there is a risk that stock prices and trading volumes at the time of sale may fall below expectations due to a downturn in the stock market. If share prices decline during the lock-up period for newly listed stocks, this could adversely affect operating results and financial condition through decreased operating revenue and the occurrence of valuation losses on securities held. Although the Company verifies the reasonableness of share prices at the time of investment, it cannot completely avoid fluctuations in the external market environment.

In investments in unlisted and listed companies, there is a risk that poor performance or bankruptcy of investee companies, or divergence from expected business progress, could result in valuation losses on operating investment securities and provisions for investment losses, thereby increasing operating costs. Unlisted shares have markedly low liquidity, and there is no guarantee that they can be sold at the desired price or timing. Although the Company conducts post-investment monitoring and growth support, changes in the external environment over the long investment period may cause investment returns to deviate significantly from expectations.

In project investments such as renewable energy, there is a risk that unexpected events—such as changes in underlying assumptions, natural disasters, or changes to the feed-in tariff system—could reduce project income or lead to impairment of fixed assets. The Smart Agri (plant factory) project has already recorded continuing negative operating income, and indicators of impairment have been recognized. At the time of sale, trends in interest rates and prices, as well as fluctuations in the yields of other financial assets, may make it difficult to sell at the desired price or timing.

Since the Company's primary revenue depends on capital gains, the timing and price of the sale of investment assets fluctuate depending on external factors such as stock market conditions, interest rates, and prices, creating a risk that earnings may vary significantly from fiscal year to fiscal year. While the medium-term management plan aims to stabilize fee income by expanding AUM/AUA, the structure dependent on capital gains will continue until such expansion progresses sufficiently. The Company explicitly recognizes this as a risk that could materially affect its financial condition, operating results, and cash flows.

Existing borrowings include floating-rate loans, creating a risk that rising interest rates will increase interest expense. In fundraising from financial institutions for project investments as well, rising interest rates could reduce profitability. The Company carefully verifies profitability while monitoring interest rate trends and is also considering fixing its funding rates, but expects the recent upward interest rate trend to continue in FY2027 (ending March 2027) as well.

In project investments involving the construction or acquisition of facilities and equipment such as power plants, there is a risk that rising prices for labor, energy, and materials could increase construction and acquisition costs, thereby reducing profitability. In projects where sale prices or rents are fixed, passing on cost increases is difficult, requiring responses such as early monetization or increased fee income. The Company expects the recent upward price trend to continue in FY2027 (ending March 2027) as well.

The Company has a policy of actively pursuing M&A using funds raised through the third-party allotment in October 2025, but there is a risk that changes in the external environment or previously unrecognized issues discovered after an M&A transaction could necessitate goodwill impairment, adversely affecting business performance. Although the Company works to reduce this risk through due diligence and third-party evaluations by outside experts, since the Company intends to pursue non-continuous corporate growth, the likelihood of this risk materializing is recognized as high.

As of the end of FY2026 (ending March 2026), the Company on a standalone basis holds ¥2,644 million in debt-based financing, and since March 2009 has obtained rescheduling agreements from all its financial institution lenders on multiple occasions. The current repayment plan is due to expire at the end of July 2026, and while the Company is negotiating a new repayment plan with all its lending financial institutions, there is a risk of losing the benefit of the term if negotiations fail to reach agreement. The new repayment plan also has a one-year loan term (with a repayment deadline of the end of July 2027), presenting a structural challenge requiring similar negotiations every year.

Governance Partners Co., Ltd. is a major shareholder that indirectly holds 23.6% of total voting rights through disclosed shareholdings, and its representative director also serves as representative director of the Company. If a significant change occurs in the future relationship between the Company and Governance Partners, this could affect the Company's shareholding and disposal policy, voting rights exercise, the status of director dispatches, and share price formation. Since Governance Partners is an investment company operating in the same business as the Company, there is an inherent risk of conflicts of interest, which the Company addresses through measures such as a unanimous consent requirement in its investment committee.

The Company is subject to a wide range of legal regulations both in Japan and overseas, including the Financial Instruments and Exchange Act, the Companies Act, tax laws, and foreign exchange control laws, creating a risk that non-compliance with regulations could hinder business operations, increase costs related to fund design changes, and damage social credibility. The Company must maintain compliance with notification requirements for specially permitted businesses for qualified institutional investors, as well as licenses and registrations under the Financial Instruments and Exchange Act and the Building Lots and Buildings Transaction Business Act, and must respond to regulations across multiple jurisdictions, including offshore regions. Although the relevant management department continuously gathers information and works to respond appropriately, risks arising from changes in legal systems persist on an ongoing basis.