Stewardship Code

1. Background

Mosaic Asset Management Private Limited (hereinafter referred to as “Investment Manager”) is one of the sponsors to, and the investment manager of, the Mosaic Asset Management MultiYield Fund (“Fund”), a Category II Alternative Investment Fund (“AIF”) registered with the Securities and Exchange Board of India (“SEBI”) under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) (SEBI Registration No. IN/AIF2/24-25/1597).

The Code is applicable to all funds managed by the Investment Manager (collectively, “Mosaic Funds”) and their respective schemes, subject to the nature and requirements of each fund.

2. Introduction

As per Paragraph 13.4 of the ‘Master Circular for AIFs’ bearing reference no. SEBI/HO/AFD-1/AFD-1-PoD/P/CIR/2024/39 dated May 7, 2024, as amended (“Master Circular”), all AIFs are required to mandatorily follow the Stewardship Code contained in Annexure 10 of the Master Circular, in relation to their investments in listed equities. The ‘Stewardship Code’ describes the approach taken by the Mosaic Funds to stewardship based on the principles indicated by the Circular.

3. Applicability

This Code documents the guiding principles to be adopted and followed by the investment management team managing the Mosaic Funds. This Code is prepared based on principles enumerated in the said Circular. This Code shall act as guidance to the investment management team for discharging its stewardship responsibility.

This Code is applicable for the fund related activities undertaken by the Investment Manager. This Code will be effective for all listed companies, where the respective Mosaic Fund has made investments.

A. Dhananjaya, the compliance officer of the Investment Manager (“Compliance Officer”), shall be responsible for the implementation of the Code under the overall supervision of the board of directors of the Investment Manager.

The Investment Manager shall be deemed to have adopted this Code in respect of each scheme of the Mosaic Funds, severally and not jointly. No rights, responsibilities or liabilities of any scheme shall be attributed to any other scheme within the Mosaic Funds. This Code shall be deemed to be a separate Code for each scheme of the Mosaic Funds, and each reference herein to “Fund” shall be deemed to be a reference to each respective scheme severally and not jointly. The term “Fund” is used collectively herein for the sake of convenience only and shall in no way be deemed to impose or create any joint duties, obligations or liabilities among the schemes of the Mosaic Funds.

4. Definations

4.1 Immediate Family Relationship

“Immediate Family Relationship” with reference to any natural person, means anyone who is related to another, if:

they are members of a Hindu undivided family;
spouse of such person; or
one person is related to the other in such manner as may be prescribed under the Companies Act, 2013.

4.2 Supervised Person

“Supervised Person” includes (i) partners, key advisors, key persons, operating partners, employees, officers, directors (or other person occupying a similar status or performing similar functions), any support staff such as IT staff or secretarial staff who have access to unpublished price sensitive information and employee of the respective Mosaic Fund; and (ii) any other person who provides investment advice on behalf of the respective Mosaic Fund and is subject to such Mosaic Fund’s supervision and control.

4.3 Portfolio Company or Portfolio Companies

“Portfolio Company” or “Portfolio Companies” means a company, special purpose vehicle, trusts, limited liability partnership, body corporate enterprise, venture in which the Scheme has invested or is authorised to invest the Capital Contribution subject to compliance with applicable investment guidelines/policy and the AIF Regulations.

4.4 Prospect Company

“Prospect Company” shall mean and include any company, special purpose vehicle or limited liability partnership or body corporate, fund or any other entity or venture which is or was under evaluation by the respective Mosaic Fund, whether or not the potential investment is eventually made by such Mosaic Fund, based on such evaluation, and shall include a subsidiary or holding company of such company or body corporate.

5. Objective

The objective of the Code is to enhance the quality of engagement between institutional investors and the portfolio companies to help improve corporate governance practices with a view to enhance long term returns to the investors of the Mosaic Funds.

Stewardship responsibilities include monitoring and actively engaging with portfolio companies on various matters including performance (operational, financial, etc.), strategy, corporate governance (including board structure, remuneration, etc.), material environmental, social, and governance (ESG) opportunities or risks, capital structure, etc.

6. Implementation of the Code

6.1 Principle 1: Stewardship Responsibilities

6.1.1 Role of Key Persons

The key persons of the Mosaic Funds are responsible to safeguard interests of the investors. Hence, the key persons shall be responsible for overall implementation and execution of this Code. The stewardship responsibilities of the Mosaic Funds shall be:

1. The investment management team while making investment decisions shall take into consideration various aspects of a Portfolio Company, such as the Portfolio Companies’ policies, strategies, financials, business processes, operational processes, environmental social governance (ESG) risks, practices on corporate governances (including board structure, remuneration, etc.), industry-level monitoring and possible impact on the Portfolio Companies and such other information as relevant for the purpose of making investment decisions in the Portfolio Company; To ensure active engagements with the Portfolio Companies including meetings with management, board or relevant personnel to identify, deliberate on and find possible solutions to the issues and continue discussions to formalize a better process to fill existing gaps;
2. To exercise voting rights in the portfolio companies in a manner consistent with the best interests of the investors; and
3. To have a clear policy on conflict of interest to ensure that the interest of the investors of the respective Mosaic Fund’s is placed before the interest of any other person/entity.

6.1.2 Outsourcing

In case the any Mosaic Fund utilizes the services of any external service providers to support the investment management team in discharging its stewardship responsibilities, the respective Mosaic Fund shall ensure that the engagement of such external service providers will be in compliance with the fund’s Vendor Management Policy.

6.1.3 Training and Review

A training program shall be formulated for training of the key persons, investment management team and such other employees who are involved for ensuring compliance of this Code. The training sessions shall be conducted to explain the responsibility under this Code along with amendments, if any. This may be done through external agency or internal team presentations.

6.1.4 Disclosure on website

This Code, as amended from time to time, will be disclosed on the website of the respective Mosaic Fund. Any change or modification to the Code will also be disclosed on the website from time to time.

6.2 Principle 2: Management of Conflict Interest

Each Mosaic Fund has adopted a separate policy for managing conflicts of interests to ensure that the interests of the contributors of the respective Mosaic Fund are protected.

6.2.1 Approach for resolution of conflict of interest

In addition to the provisions set out in the conflict management policy, the Mosaic Funds shall establish procedures for managing and mitigating conflict of interest which shall include but are not limited to the following:

Confidential Information: In order to protect the interest of the Mosaic Funds or Portfolio Company or Prospect Company, each Mosaic Fund shall enter into appropriate confidentiality agreements with necessary persons to restrict the flow of information to certain individuals and prevent improper access to information; and
Arm’s Length Transactions: Mosaic Funds will take appropriate measures intended to ensure that it or any Supervised Persons or the investment management team will not unfairly profit from any transaction and all such transactions shall strictly be done on an arm’s length basis.

In the event any Mosaic Fund, the Supervised Persons or investment management team (including any of its members) are unable to implement sufficient controls to prevent damage to the respective Mosaic Fund’s interests, such Mosaic Fund shall then disclose the relevant conflict of interest to the compliance committee constituted by the Investment Manager (“Compliance Committee”), comprising of Maneesh Dangi and the Compliance Officer.

The Compliance Committee is responsible for establishing, periodically reviewing and monitoring the compliances related to each Mosaic Fund. Such disclosure will be in writing and will include sufficient detail to enable the Compliance Committee to take an informed decision with respect to the role of Mosaic Funds in the context of which the conflict of interest arises. No member of the Compliance Committee that is the subject of a conflict of interest scrutiny shall take part in the decision-making process with respect to such conflict of interest scrutiny. The Compliance Committee will also maintain a record of the minutes of the decisions taken to address any conflicts.

For additional details, please refer to the conflict management policy.

6.3 Principle 3: Monitoring of Portfolio Companies

6.3.1 Areas of Monitoring

The investment management team is responsible for the periodic monitoring of the Portfolio Companies’ performance. The investment management team shall periodically monitor the Portfolio Companies in the following areas including but not limited to:

Business strategy;
Financial performance and capital structure;
Quality of company management, board, leadership etc.;
Practices on corporate governance especially including board composition (with respect to independence and diversity), size and quality (with respect to leadership and credentials of the board members), director remuneration and related party transactions;
Risks, including environmental, social and governance risks (ESG); and
Shareholder rights, including minority shareholders and their rights, shareholders’ grievances etc.

6.3.2 Level of Monitoring for Portfolio Companies

The level and degree of monitoring/engagement may vary depending upon the materiality of investments. The investment management team shall determine the level of monitoring for the Portfolio Companies. The investment management team may identify situations where active engagement with the Portfolio Companies may not be necessary, especially if the investment is insignificant, etc. In case of Portfolio Companies where larger investments are made, higher levels of monitoring may be conducted.

6.3.3 Process of monitoring

The investment management team as part of its monitoring process may use publicly available information i.e., corporate disclosures on the exchanges viz. quarterly results, annual reports, corporate announcements etc. It may also engage with the management of the Portfolio Companies on a periodic basis. Further, it can also review the sell side research and industry information, etc. The members of the investment management team shall, where feasible, attend meetings/conference calls conducted by the management of the Portfolio Company. The respective Mosaic Fund may be required to seek certain information from the Portfolio Company which may be necessary for monitoring purposes, however such information could be construed as insider information. In all such instances, the investment management team shall ensure due compliance with the Securities and Exchange Board of India (Prohibition on Insider Trading) Regulations, 2015 and the Prevention of Insider Trading Policy of the Mosaic Fund as well as ensure that the Mosaic Funds does not breach the prohibitions or restrictions on insider trading.

6.4 Principle 4: Intervention in the Portfolio Companies

Each Mosaic Fund would intervene in the Portfolio Companies, on a case-to-case basis, wherever it deems necessary and the materiality of the investment makes it possible for the respective Mosaic Fund to do so. The decision in this regard will be taken by the investment management team.

6.4.1 Identifying possible circumstance of active intervention

Continuous lack of financial performance;
Lack of corporate governance practices;
Inequitable treatment of shareholders;
Lawsuits/litigation;
Non-compliance with regulations; or
Any other important issue.

6.4.2 Mechanism of intervention and regular assessment of outcome of intervention

Step 1: Engagement: The investment management team member shall, if possible, have one-to-one meetings with the management team, engagement with specific teams etc. to resolve any concerns including steps to be taken to mitigate such concerns.
Step 2: Re-Engagement: In the event the management of the Portfolio Company fails to undertake constructive steps to resolve the concerns raised within a reasonable timeframe post initial engagement of the investment management team members of the respective Mosaic Fund, the investment management team members shall reinitiate the engagement with the management to resolve its concerns and reiterate the conclusions or the plans of action decided at the prior meetings, if possible. A time bound plan to rectify or re-align the business practices or actions should be discussed and agreed upon, if possible.
Step 3: Escalation: In case there is no progress despite Step 1 and Step 2, the respective Mosaic Fund may escalate the matter for: (i) discussion with the board of directors of the Portfolio Company; and (ii) discussion at the general meeting of the Portfolio Company. If there is no response or action taken by the Portfolio Company despite the efforts, the Mosaic Fund may approach the relevant authorities governing the Portfolio Company.
Step 4: Collaboration: Each Mosaic Fund may also consider collaboration with other institutional investors, professional/industry associations and any other entities where it deems necessary on a case-by-case basis when it believes that collaborative actions would be an effective means by which investors can exercise appropriate influence.
Step 5: Voting against Issue: Each Mosaic Fund may consider voting against issues if it disagrees with the management, observes improper governance practices or when above mentioned modes of intervention fail.

6.4.3 Investments in Portfolio Company

In case the respective Mosaic Fund’s intervention is not successful, it will not automatically result in the exit of investment in the Portfolio Company. The decision to purchase more equity or sell all or part of the total investment in the Portfolio Company will be made in the best interest of the investors, considering prevailing valuations and other market factors.

6.5 Principle 5: Voting Related Matters

6.5.1 Exercise of voting rights

Each Mosaic Fund shall exercise voting rights in the Portfolio Company in the best interest of the investors. The voting rights shall include voting for and against and abstention from exercising the rights. Mosaic Funds have in place a comprehensive voting policy which includes details of mechanisms of voting, circumstances in which voting should be for/against/abstain, disclosure of voting. The guiding principles related to voting are annexed in Annexure A hereto.

6.5.2 General Guidelines for exercise of voting rights

Each Mosaic Fund’s decision either to vote or abstain from voting or vote against any proposal of the Portfolio Companies shall be made taking into consideration any possible implications on the respective Mosaic Fund’s interest. Each Mosaic Fund shall keep the interest of the respective Mosaic Fund and its investors as paramount.

6.5.3 Use of proxy advisors

Each Mosaic Fund may at its discretion avail services of proxy advisors to support in decisions of voting in Portfolio Companies. Mosaic Funds shall not be bound by the recommendations of the proxy advisors; the respective Mosaic Fund can exercise its own discretion in relation to voting decisions.

6.6 Principle 6: Report on Stewardship Activities

Each Mosaic Fund shall provide periodic reports of its stewardship responsibilities in a simple format to the investors. A report may be placed on the website on implementation of every principle of the Code. Different principles may also be disclosed with different periodicities (e.g. voting may be disclosed on quarterly basis while implementation of conflict management policy may be disclosed on an annual basis). Any updates to the Code may be disclosed as and when undertaken. The report may also be sent as a part of annual intimation to the respective Mosaic Fund’s clients/ beneficiaries.

ANNEXURE A

Voting Policy

1. Voting Policy Guidelines

Each Mosaic Fund shall endeavour to vote on all ordinary/special resolutions which may affect the investors’ interests.
Each Mosaic Fund may authorize any of its officials or authorised agents to attend the meetings of the Portfolio Companies in person and to vote as approved internally basis the decision of investment management team.
The decision regarding the voting on the resolution (i.e., whether the respective Mosaic Fund will abstain from voting or vote for or against the proposed resolution by the Portfolio Company) will be taken based on the decision of investment management team.

2. Abstain from voting

Each Mosaic Fund may also decide to abstain from voting in cases (a) where the proposal is not considered detrimental to the interest of the investors; (b) where the cost involved in exercising the voting rights far outweigh the advantages to be derived therefrom; and (c) where it has insufficient information or there is conflict of interest with the respective Mosaic Fund.
Each Mosaic Fund may also abstain from voting for the Portfolio Entity on certain matters which are general or routine in nature and are not likely to impact the respective Mosaic Fund’s interest in the Portfolio Company.

3. Mechanisms for Voting

With the availability of voting through electronic means, the respective Mosaic Fund shall cast its vote using an electronic platform. Where electronic voting is not possible, such Mosaic Fund shall endeavour to vote in person, either by itself or through external proxy service providers.

4. Exception

Each Mosaic Fund will vote in accordance with the voting policy, but it may act differently if the relevant facts and circumstances so warrant. Hence, each Mosaic Fund may deviate from the voting policy guidelines when it determines that the deviation is necessary to protect the interests of the Investors.

5. Disclosure

The voting policy will be shared with the investors at the time of onboarding of the investors and thereafter in case of any updates.
Each Mosaic Fund shall record and disclose the specific rationale supporting its voting decision (for, against or abstained from voting) with respect to each vote proposal and disclose it to the Investors on annual basis.
Each Mosaic Fund shall additionally publish a summary of the votes cast across all the Portfolio Entities and break-up in terms of total number of votes cast – for, against or abstained from voting.