CEO Message (Integrated Report 2024 -Annual Report-)

Sumitomo Mitsui Trust Group celebrated its 100th anniversary since its incorporation on April 15, 2024. I would like to express my sincere gratitude to all the stakeholders who have supported us over a long period of time.

100 years ago, Japan was in an era when personal and corporate wealth started to accumulate and simultaneously society and industry became more complex and diversified, amid economic development after World War I. In a situation of greater uncertainty and economic and social immaturity than in modern times, it may not have been easy to manage and increase important assets by oneself. Even if people tried to leave the management of their property to others, there were people who came into contact with them with evil intentions and people who did not have sufficient knowledge and experience. Not only did people not gain profits, but they also suffered losses in many cases. In light of this historical background, the creation of a trust company, which gained the absolute confidence of property owners and enabled safe and secure management of property and profit-making, was a necessary step in making Japan a prosperous nation.

A prospectus of the Mitsui Trust Company, Limited at the time of its establishment in 1924 stated its commitment as a credit institution entrusted with asset management and asset administration for citizens in a rapidly advancing economy and society. Also, a prospectus of Sumitomo Trust Co., Ltd., which was established in 1925, the following year, stated that “The settlor must have absolute confidence in the trustee. At the same time, the trustee must fulfill their duty with the utmost fidelity and integrity in order for the trust to gain the confidence of others.” 100 years later, the essence of trust, which has been based on faith and sincerity, remains the same. We are proud of our history of providing the trust group's sophisticated and diverse financial services, in response to the conditions and circumstances of the settlor, and of continuing to respond to the precious trust of society and clients.

The 100-year history of the Group is the history of the trust, which has developed along with society and economy. In 1948, Mitsui Trust and Sumitomo Trust, which entered the post-war period as dedicated trust companies, converted into trust banks that operate both banking and trust businesses. In 1952, we started the loan trusts business. From the post-war reconstruction period through the period of rapid economic growth in Japan, we have provided long-term stable funds to industry and long-term investment products with high yields to individuals, creating a virtuous circulation of funds necessary for the development of the Japanese economy. In the 1960s, as the economic structure became more complex and wealth accumulated at the same time, pension trusts were launched as a system to support long-term stable asset formation. Through more than half a century of initiatives, it has become popular as a corporate welfare system. In recent years, due to the growing importance of the corporate governance code, it has also attracted attention from the perspective of asset formation support for corporate employees as a stakeholder. Since then, as Japan's economy has developed, individual's efforts for asset formation have been accelerated in earnest by investment trusts. Currently, the amount of trust assets in Japan exceeds 1,500 trillion yen, which is more than the balance of deposits in banks.

The Sumitomo Mitsui Trust Group is in its current status as a result of continuous efforts to realize the virtuous circulation of funds through the power of trusts by confronting social issues that change from era to era, based on our long-term trust relationships with corporate and individual clients. We will continue growing ourselves while also continuing to make changes, take on challenges, and contribute to the prosperous development of society and the economy.

2024, a memorable year for the Group, seems like it will be a major turning point for the Japanese economy. The Nikkei Stock Average has hit a 34-year high, and interest rates, which have been left at an unusually low level for a long time, are on an upward movement. Wages at a broad range of companies have increased compared to last year, and the number of overseas visitors to Japan has significantly increased due to the end of the COVID-19 pandemic. Among the various changes, I particularly pay attention to positive changes in individual’s attitudes and mindset toward investment. In a deflationary environment, even if we did not take risks and actively invest, we did not face any problems of declining real asset values. Now that sustained rises in prices and wages are foreseeable, many individuals are finally beginning to recognize that investments that generate returns are necessary and essential. Looking at examples from other countries, such as Europe and the United States, we expect that the expansion of investment in Japan will begin in earnest through the enhancement of policies and systems that support people's asset formation and financial education. The government's initiatives toward the achievement of Asset Management Nation and the start of a new NISA, whose contents have been significantly revised since January this year, will also serve as catalysts to accelerate investment, with household assets of more than 3,000 trillion yen, including real estate, as the starting point.

In the Group's Medium-Term Management Plan announced last May, we set out a strategy to achieve capital-efficient profit growth by increasing fee income, focusing on the asset management and asset administration businesses. The ROE target for 2025, the final fiscal year in the plan, is 8% or more, and we aim to achieve ROE of 10% or above by fiscal 2030. The timing of earnings growth will vary depending on the strategies and initiatives, but we will continue to make investments in a sustained manner that will lead to future growth, achieve ROE of 10% or above as early as possible, and further improve capital efficiency by fully utilizing the functions and strengths of the Trust Group.

The Group's capital-efficient profit growth will be realized by promoting a virtuous circulation of funds, assets, and capital in Japan. Looking back at history, we find that the power of trusts has always been required to solve social issues that bring large amounts of financial circulation between business operators and investors.

We, the Trust Group, are involved in various investment value chains in the financial market (funds) for the banking business, the real asset market (assets) for the real estate business, and the capital market (capital) for the asset management and asset administration businesses, providing infrastructure functions for the markets. In addition to working on engagement for both businesses and investors in broad range of markets to enhance corporate values and asset values, the bank also provides financial solutions leveraging its own balance sheet, as well as brokerage and consulting functions in areas requiring high levels of expertise such as real estate and pensions. The Group's diverse and broad range of business creates many contact points with markets and clients, and promotes a virtuous circulation of funds, assets and capital. Investors' funds intersect with our business contact points somewhere in the market, and the increase in the corporate value of business operators lead to an expansion of the capital market. With social issues in Japan, such as decarbonization and the age of 100-year life, now is a time where large amounts of money and diverse solutions are desired. We believe that such an environment provides us with an ideal opportunity to contribute to the improvement of social value through the power of trusts as well as to achieve our own growth.

Each corporate client has different views and policies on corporate governance, so there are many cases where negotiations do not go as well as we expected. While we are aware that some institutional investors opine that the progress of the reduction has been slow, there is no change in our policy to emphasize polite dialogue with our clients and to work carefully to prevent negative impact on business transactions as much as possible, as a trust group that conducts a wide range of businesses based on long relationships of trust with clients. For corporate clients that require a certain amount of time to complete the reduction to zero, we conduct engagement activities focusing on shareholder interests in accordance with the voting rights guidelines at Sumitomo Mitsui Trust Bank while holding the shares. The purpose of engagement is to improve our clients’ corporate value by providing solutions to meet the guidelines. However, there are some cases in which they agreed that we sell all our shareholdings if we consider exercising our voting right to oppose them.

In fiscal 2023, thanks to the tailwind of strong stock prices, we could record 79.3 billion yen in the first year against the cost basis reduction target of 150 billion yen in the three years through fiscal 2025. Since the declaration of zero-holdings in May 2021, the total cost basis reduction of strategic shareholdings has been 180 billion yen, and the number of client companies held by strategic shareholdings has decreased by 35%. There seems to be an increasing movement to reconsider the positioning of strategic shareholdings in corporate management, even among corporate clients with whom reduction has not been completed. We will continue to promote our initiatives to achieve zero holdings.

In Japan, it is common to emphasis on ideas of working diligently and securing labor income, while it is also believed a certain amount of money is required for a life after retirement. As mentioned above, prolonged deflation is one of the factors contributing to the large share of cash and deposits in household assets. In preparation for rising prices and longevity, the era is eventually coming when Japanese individuals have to consider increasing their own wealth by financial income as well in addition to labor income. I would like to talk about the sophistication of the asset management industry in Japan and our efforts to improve financial literacy as areas where we, as a trust group, can particularly contribute to making Japan an Asset Management Nation that the government has set forth.

Regarding the asset management business of the Group, we will improve the autonomous asset management capabilities of our core subsidiaries, Sumitomo Mitsui Trust Asset Management, Nikko Asset Management and Sumitomo Mitsui Trust Bank, while making use of capital to partner with asset managers in Japan and overseas that have new strategies. Each investor has a different risk tolerance and investment objectives and durations. Therefore, in order to provide optimal investment opportunities for investors, we believe that it is necessary to establish a management structure that incorporates diverse asset managers with each strength within the Group. I am sure that this concept is consistent and common to the spirit of trust, which provides sophisticated and diverse solutions to different conditions and circumstances depending on the settlor.

One of the diverse asset management types is private assets. In July 2022, we announced the business strategic partnership with Apollo Global Management, Inc., a major U.S. investment fund, for asset management and other operations, and invested $1.5 billion in a portfolio managed by the Apollo Group. The ultimate goal of this initiative is not just to make investments, but to create and expand the private asset market in Japan. Decarbonization efforts will require domestic investment of 150 trillion yen over the next 10 years, while the long-term investment needs of institutional investors, such as life insurance companies and pension funds, and individual investors are also increasing. By taking advantage of the knowledge and experience of private asset investment that we have accumulated through the use of the trust bank balance sheet, we will continue to develop and offer investment products with business partners who play active roles globally.

As for the sophistication of the Japanese asset management industry, it is required for each asset management company and product distributor to enhance the level of credibility and increase value added. For that purpose, it is important to address the challenges faced by the industry, in which new entrants have difficulties with Japan's unique business practices and entry barriers. To address these issues, we provide the service of middle-back functions to asset management companies. As a part of our streamlining efforts, we have already started to promote the initiative within the Group and also accepted contracts from major domestic asset management companies. Our strategy is to contribute to the development of capital markets by providing such functions to overseas and emerging asset management companies, as well as expanding the Group's asset administration business.

We provide company employees and individual investors with advanced financial education that has been developed in our pension business for decades. When more people live to be about 100 years old, it is not enough to start managing assets after retiring from work. Nowadays it is desired, when people are young, to estimate the funds necessary for the future and to make investment in ways that fit to the life plan they envision. “Smart Life Designer,” a smartphone application released by Sumitomo Mitsu Trust Bank in 2022, has a lifetime simulation function that works for pension assets as well as financial assets and mortgages, so users can accurately understand how much money they will need in the future. This application also provides information that is necessary for making investment decisions and asset management tools and has been well received by many individual clients.

We are also focusing on school education as an effort to improve the financial literacy of the next generation. We have offered the program for high school students previously. In fiscal 2023, we expanded the program to include elementary and junior high school students and provided financial education to approximately 15,000 students in 116 schools nationwide. We will share our knowledge and experience as a trust group with younger generations and contribute to the development of a sustainable asset management business.

In order to encourage employees to take on challenges, we need a personnel system and support system that enables each employee to autonomously consider and choose their own career. The Group provides employees with a number of options, including internal job posting systems, internal and external side job systems, and occasional seeking of applicants for secondment to universities and other companies. In April this year, we began providing subsidies for housekeeping and meal delivery services to employees returning from childcare leave, and expanded our support for employees who wish to return to work early. We have also enhanced the offering of online educational programs and developed a system that enables employees to acquire a broad range of knowledge and information not necessarily in business matters. We encourage employees themselves to choose the knowledge and expertise they want to acquire in the future, working style, and speed of their own growth. At the same time, we actively support their careers and challenges that employees want to pursue, to produce many human resources who can gain the trust of society and clients.

In promoting women's active participation, we strive to achieve a ratio of at least 30% of female executives by 2030. By the end of October 2024, Sumitomo Mitsui Trust Bank aims to achieve a ratio of female employees in management positions (section managers, team leaders, and above) at least 20%. Compared to three years ago, the number of female and international directors and executive officers has increased in the major subsidiaries.

Diverse values are very important in corporate management, and I myself treasure dialogue with employees who will lead the next generation. I also take advantage of opportunities for overseas business trips to convey my management philosophy and principles to local hired staff working at overseas offices. While I listen to the voices of many young employees who are leading the way for the future, I often receive tips for consideration of future management. More recently, as part of our 100-year anniversary activities, we have been working to make each employee feel confident and rewarded with working for the Group by learning about the Group's identity and its history of challenges and development. Toward the next 100 years, we will further enhance our corporate culture that creates new challenges while taking advantage of the Trust Group's strengths in diversity and expertise.

“What does a trust mean to me?” Sometimes I ask myself. Since joining the company, I have been practicing "thinking by myself, making my own judgments, and acting on my own." I believe that we can achieve growth and obtain the trust of those around us only when we put ourselves in the midst of various daily events and take initiatives with a proactive approach. When I look back, I realize that, on the inside of “myself” I am aware of, there have been stakeholders like clients, employees, shareholders and others who have always been guiding what I do. It is quite impressive to recognize that the principles of fiduciary have been driving me. I am truly proud to be your fiduciary and we, the Sumitomo Mitsui Trust Group, will continue to fulfill our role to realize a prosperous future for our stakeholders, and continue to grow with you all.

I would sincerely appreciate your continued understanding and support.

July 2024

Director, President & CEO
Sumitomo Mitsui Trust Holdings, Inc