JAPAN Law and Practice Contributed by: Mikito Ishida (Mori Hamada & Matsumoto) and David Azcu (Simpson Thacher & Bartlett LLP), Mori Hamada & Matsumoto
fund vehicles are prohibited from investing in a fund using the Article 63 Exemption. The entire list of Article 63 Exempted Operators is
either a QII or an Eligible Non-QII. Appropriate transfer restrictions should be included in the relevant fund documentation (eg, the fund’s partnership agreement, subscription agreement, or other documents) in order to assure eligibility for the Article 63 Exemption. De minimis exemption Another exemption that may be available to the gen - eral partner of a partnership-type non-Japanese pri - vate fund that is marketed to Japanese investors is the so-called “de minimis exemption”. If the requirements for this exemption are met, the general partner would be exempted from registration as an IMBO and would also not need to make a Form 20 notice filing under the Investment Management Regulations. The de minimis Japanese QII exemption requires that: • the non-Japanese fund has fewer than ten direct or indirect Japanese investors – the rules look through collective investment schemes (eg, fund-of-funds) and count indirect Japanese investors of such a scheme for purposes of determining the number of Japanese investors; • all direct and indirect Japanese investors in the fund must be QIIs; and • aggregate capital contributions from Japanese investors must represent no more than one third of the aggregate capital contributions of all investors in the fund. This exemption is only available with respect to the Investment Management Regulations; it is not avail - able with respect to the Marketing Regulations. There - fore, subject to certain exceptions (eg, marketing through a placement agent or intermediary that is a Type II FIBO), the general partner of a foreign fund would still need to perfect an exemption from the reg - istration requirements under the Marketing Regula - tions by making a Form 20 notice filing to offer inter - ests to investors in Japan. Typically, a general partner relying on the de minimis exemption would: • rely on the Article 63 Exemption for marketing the fund to Japanese investors in compliance with the
publicly available on the FSA’s website. Qualified Institutional Investors (QIIs)
QIIs are effectively the lynchpin of the Article 63 Exemption. The exemption is not available to general partners without a Japanese QII, making it difficult to perfect an exemption from registration without one. The definition of a QII is set by cabinet order under the FIEA. Investors that automatically qualify as QIIs
include: • banks; • insurance companies; and • IBLPs.
In addition, companies and individuals that hold investment assets (ie, securities) of at least JPY1 bil - lion in value can become QIIs by duly making a filing with the FSA; this filing must be renewed biennially. QIIs qualify as “professional investors” under the FIEA, so general partners that market to QIIs can take advantage of certain reduced regulatory burdens with respect to financial transactions, as discussed in relation to certain regulatory obligations described in Japanese investors who are not QIIs but who meet certain other requirements may qualify as “Eligible Non-QIIs” and can participate in a fund managed by Article 63 Exempted Operators. While the require - ments for qualification as an Eligible Non-QII are sub - stantially lower than those for a QII, the threshold may still be challenging for typical individual investors. Transfer restrictions As noted above, Japanese investors who invest in funds that rely on the Article 63 Exemption will be subject to certain restrictions on the transfer of their interests in such funds. Under these transfer restric - tions, QIIs may only transfer their partnership inter - ests to other QIIs, while Japanese non-QIIs may only transfer their entire interests to a single investor that is more detail below. Eligible Non-QIIs
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