SPARX GroupCo., Ltd.

Trust fees and investment advisory fees, which account for the majority of revenue, are linked to assets under management (AUM). If a downturn in the listed equity markets in Japan and Asia, or external events such as climate change, pandemics, or conflicts, deteriorate investment performance, this directly impacts business results through a decline in AUM. There is also a risk of a chain reaction of cancellations triggered by changes in clients' asset allocation policies. In response, the Group is diversifying investment targets to include real estate, renewable energy, and private equity, thereby reducing dependence on the listed equity markets.

As an independent asset management company not affiliated with a major financial institution group, the Group lacks a strong sales channel or affiliated capital with low cancellation risk, placing it at a comparative disadvantage to competitors in terms of the stability of AUM and operating revenue. Contracts with clients can be canceled with a relatively short notice period, creating a risk that cancellation by one client could trigger a chain of cancellations by other clients. While the Group is working to reduce concentration on specific investors by accumulating smaller-scale funds, structural vulnerabilities remain.

Deterioration in investment performance makes it more difficult to retain existing clients and acquire new contracts, leading to a decline in AUM. In addition, since performance fees fluctuate significantly each year depending on investment results, there is a risk that both AUM-based fees and performance fees could decline simultaneously in a deteriorating market environment. The Group addresses this through sharing its investment philosophy via internal study sessions and strengthening the marketing of funds with performance fees, but dependence on market conditions is unavoidable.

The Group must maintain its registration for investment management business, investment advisory business, etc. under the Financial Instruments and Exchange Act, and any revocation of licenses or administrative sanctions would seriously impede business continuity. Overseas offices in South Korea, Hong Kong, the Cayman Islands, and elsewhere are also required to comply with local laws and regulations, and inadequate response to regulatory amendments or changes in interpretation could lead to business restrictions or client attrition. The Group addresses this through monitoring by the Compliance Committee and training systems established at each office.

Representative Director and President Shusei Abe plays a central role in determining the direction of business management and investment strategy, and there is a risk that business results could be materially and adversely affected should he become unable to perform his duties for any reason. In addition, the Abe Group, as a major shareholder holding a majority of the Company's shares, is in a position to determine fundamental matters such as the election of directors, creating a risk that the interests of other shareholders could be undermined if voting rights are not exercised appropriately. The Group continues to work to reduce this dependence by building an organizational management structure and developing management personnel.

The Group makes proprietary investments in listed and unlisted funds and disburses development funds for power plants and other projects. If impairment losses arise due to deteriorating market conditions, poor performance of investees, or abandonment of development projects, these are reflected as valuation losses in the income statement, worsening business results. For strategic shareholdings, there is also a possibility that the timing and method of recovering the investment may be limited. The Group curbs the expansion of losses through monthly and quarterly monitoring, conservative accounting treatment, and management of total investment amounts relative to consolidated net assets.

If the computer systems essential to business operations are disrupted or tampered with due to system failures, cyberattacks, natural disasters, or other causes, this could seriously impede business continuity and undermine the trust of clients and the market. In recent years, risks such as information leaks, misinformation, and copyright infringement arising from inappropriate use of AI technologies, including generative AI, have also become apparent. The Group addresses these risks through multi-layered cybersecurity measures, formulation of a business continuity plan (BCP), and the development of AI usage guidelines and employee training.

In the asset management industry, talented fund managers and other personnel are prone to being poached by competitors, and their departure could lead to a decline in investment management capabilities and client attrition. Business activities could also be hindered if recruitment and training do not proceed as planned, or if labor issues such as excessive workloads or harassment arise. The Group addresses this by offering a "Professional Nurturing Ground" that combines monetary and non-monetary incentives, along with the establishment of an appropriate labor management system.

Expanding investment targets into areas such as real estate, renewable energy, private equity, and tender offers requires securing specialized personnel and resources different from those previously required, creating a risk that the initial investment burden could temporarily impair profitability. There is also the possibility of claims or compensation demands from third parties, administrative sanctions due to inadequate conflict-of-interest management, and risks from regulatory changes in new fields. The Group addresses this by clarifying withdrawal criteria, utilizing external experts, and building internal management systems, but uncertainties specific to new business areas remain.

As of the end of March 2026, the Group's outstanding external interest-bearing debt amounted to ¥9,000 million, and it holds an issuer rating of BBB+ (Stable). However, if credit contraction in financial markets or a rise in interest rates occurs, there is a risk that the terms of additional fundraising could deteriorate. Exchange rate fluctuations also affect the yen-equivalent value of foreign-currency-denominated assets and liabilities, and foreign exchange risk may expand as foreign-currency-denominated transactions increase. The Group addresses this by maintaining a conservative financial policy and hedging through forward exchange contracts.