Establishing and managing retail funds in Japan

The whole process of starting, organizing and supervising an investment-orientated fund, especially in Japan, can become truly complicated. In this article we will talk about different aspects of establishing a foreign investment fund under Japan’s jurisdiction.

Please take this material rather as a source of information than legal advice. For concrete assistance about legislation for establishing an investment fund in Japan get in touch with COREDO’s lawyers. Our specialists will propose concrete decisions for your individual case in Japan.

Traditional for Japan

It is quite typical for Japan that retail funds are created like open-end investment funds and that very experienced in the stock market professionals manage them. The fund managers are traditionally very wealthy people and have already earned considerable amounts of financial assets. It is considered, that since they have an ability to manage their own money effectively, they will be good at taking care of someone else’s money as well.

Only one enterprise’s securities are not enough for the fund to invest in. Funds purchase securities of many issuers and by doing so design “portfolios”. This approach lowers the risk of the portfolio. If you buy a stock of funds or an investment certificate, you also purchase a portion of the “portfolio” that professional investment managements have created.

Open-end funds actually belong among ones of the most transparent investment tools. The daily reporting to participants is required and daily activities of funds are thoroughly monitored by the state.

To make sure the fund of this type is liquid, the fund’s shares can be redeemed any time. However, repurchase or purchase of shares in retail funds in Japan can be restricted in certain ways. Legal documents of the foundation must include special conditions like these.

Pros of open-end investment funds

The principal advantage that comes with an investment fund is the fact, that the investor who has collective shares in a group of relatively small funds, gets to experience the full benefit of professionally managed funds. Since even a small sum invested in the fund will be diversified, the risks will be lowered, too. There are more advantages to consider:

  • Preferential taxation – IF does not pay income tax;
  • State bodies detailly control fund activities;
  • Information about the fund activities are completely available and transparent.

Setting up a retail fund in Japan

Before registering an investment trust in Japan, it is necessary to draft and sign an agreement with the trustee first. Prior to signing an actual agreement with the trustee, a license for Investment Activities in Japan needs to be obtained. For accomplishing this step, you have to apply to FIEA, ITA or LITIC, the latter being designated in Japan to the activities of investment corporations.

As the Law states, a trust management agreement can be concluded between the operator and the trustee. Meanwhile the operator must be the investment manager and the trustee has to be a trust company.

It may be needed to apply for registration of securities issue with the Financial Services Agency if trust funds are offered publicly to a broad range of retail investors via securities companies.

Stocks for sale

In case you are seeking to sell the investment fund shares directly to investors, you should take into consideration that you need a special registration. Your company has to be listed as specializing in Type II financial instruments. Nevertheless, it is normal to engage a third-party securities firm if the trust offers investment shares openly. Logically, in order to sell the Type I securities in Japan, you must register your company as specializing in Type I financial instruments. You can also sell an investment fund shares to as many interested persons as wanted.

For those planning on doing business or registering a retail fund in Japan, COREDO’s assistance may truly come in handy. We are prepared to provide you with expert advice and legal support for managing retail funds in Japan.