JAPAN Law and Practice Contributed by: Mikito Ishida (Mori Hamada & Matsumoto) and David Azcu (Simpson Thacher & Bartlett LLP), Mori Hamada & Matsumoto
the Act on Investment Trusts and Investment Corpo - rations (AITIC). In a tōshin , a trustee holds the trust property and a manager manages the trust. The tōshin has no separate legal personality. The AITIC requires certain filings and disclosures to be made. Under the AITIC, there are two categories of investment trusts, but the type most commonly used is the “Investment Trust Managed under Instruc - tions from the Settlor”, which is limited to investing in certain specified assets, such as securities and real estate. A tōshin is commonly used for Japanese retail mutual funds and ETFs. Investment Corporations (Tōshi Hōjin) An investment corporation ( tōshi hōjin ) is a legal enti - ty established primarily to pool funds from multiple investors for investment in various types of assets. Investment corporations are also subject to regula - tion under the AITIC. An investment corporation is a standard structure used for Japanese Real Estate Investment Trusts (J-REITs). Investors hold units in the tōshi hōjin . The tōshi hōjin is required to satisfy certain criteria, including a requirement to distribute most of the income it receives within the same fiscal year in which it receives it. Satisfaction of these criteria will enable the tōshi hōjin to maintain pass-through tax treatment for Japanese tax purposes. This structure is common The Japanese regulatory regime generally divides alternative investment funds into two broad catego - ries – partnership-type funds and corporate-type funds, with different regulatory regimes applying to each. In practice, partnership-type funds tend to be more commonly used for Japan-focused funds. Part - nerships are characterised as collective investment schemes, with their interests falling within the defini - tion of “securities”, as enumerated in Articles 2 (2)(v) and 2 (2)(vi) of the Financial Instruments and Exchange Act (FIEA). Consequently, any partnership-type entity that accepts Japanese investors is generally subject to regulation under the FIEA, even if the partnership is formed and operated outside of Japan and the part - nership’s general partner is a non-Japanese entity. for both listed and non-listed REITs. 2.2 Regulatory Regime for Funds
If the partnership is subject to regulation under the FIEA, the general partner may be subject to separate (but sometimes overlapping) compliance regimes that govern the marketing (the “Marketing Regulations”) and management (the “Investment Management Regulations”) of the fund. Being subject to either the Marketing Regulations or the Investment Manage - ment Regulations would require the general partner to either register with the Financial Services Agency (FSA) or perfect an exemption therefrom by making a notice filing with the applicable authorities. A general partner would generally become subject to the Mar - keting Regulations if it were to engage in the offering of its interests in Japan or to Japan-resident investors, and would generally become subject to the Invest - ment Management Regulations if it were to engage in investment management in respect of Japanese investors. The Marketing Regulations and the Investment Man - agement Regulations presume that the relevant activi - ties are conducted by the general partner of the part - nership, rather than by any third-party manager of the fund. Therefore, any registration or notice filing requirement under the Marketing Regulations or the Investment Management Regulations would typically be an obligation of the general partner of the relevant fund and not, for example, of a third-party manager or adviser. Marketing Regulations Under the Marketing Regulations, the general part - ner of a fund would, in principle, need to either reg - ister with the FSA as a “Type II Financial Instruments Business Operator” (a FIBO) or perfect an available exemption from registration in order to market inter - ests in partnership-type private equity funds to Japan- resident investors. Registration as a Type II FIBO is a document-intensive process and may take several months (or even years) to complete. In light of the administrative burden and time requirements, many funds – at least initially – seek to perfect applicable exemptions from registration under the Marketing Regulations – eg, under Article 63 of the FIEA. Alter - natively, a foreign fund may engage an existing Type II FIBO (such as a securities firm) and delegate the marketing of the fund to Japanese investors to such third-party firm.
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