JAPAN Law and Practice Contributed by: Mikito Ishida (Mori Hamada & Matsumoto) and David Azcu (Simpson Thacher & Bartlett LLP), Mori Hamada & Matsumoto
2.6 Non-Traditional Assets Crypto-Assets
in a private equity deal. In particular, when a private equity fund undertakes an investment using a lever - aged buyout (LBO) loan, it is the SPV that will typically serve as the borrowing entity. By having the SPV act as the borrower for the LBO loan, the fund can both ring-fence liabilities within the SPV and facilitate more efficient execution of the acquisition. That said, it is important to note that partnerships are not permitted to act as promoters of new companies in Japan. Accordingly, when a private equity fund organised as a partnership wishes to establish a new SPV in Japan, the SPV must first be incorporated by another party, after which its shares can be transferred to the fund. 2.8 Local/Presence Requirements for Funds One of the requirements of the Article 63 Exemption applicable only to non-Japanese funds is the appoint - ment of a representative in Japan. If an Article 63 Exempted Operator is not a Japan resident, it must designate a local representative. This local repre - sentative may be either an individual or a corporation, and serves as the contact point for communications with the FSA or, in practice, the Kanto Local Finance Bureau. Several service providers in Japan offer representative services for a fee to non-Japanese fund sponsors who otherwise have no local presence in Japan. 2.9 Rules Concerning Service Providers An amendment to the FIEA that came into effect in 2025 introduced a new regulation related to “invest - ment management-related operations”. The new regulation covers accounting, compliance and other middle- and back-office functions connected with investment management activities performed for FIBOs and Article 63 Exempted Operators. If a FIBO delegates its investment management-relat - ed operations to a registered investment manage - ment-related operator, its own eligibility requirements may be relaxed. Investment management-related operators bear fidu - ciary duties under the FIEA and are subject to over - sight by the FSA.
An IBLP (the predominant fund vehicle for Japanese private equity and venture capital funds) has strict limitations on the types of assets into which it may invest. This is because the IBLP Act was originally enacted to support the growth of small businesses in Japan, and limited investments that could be made by an IBLP to those specifically enumerated in the statute. While these restrictions have been gradually relaxed over time, crypto-assets were not included among the permissible investments until very recently. An amendment to the IBLP Act that came into effect in 2025 now permits IBLPs to hold certain crypto-assets. In principle, however, eligible crypto-assets are limited to those issued (minted) for the purpose of financing Japanese entities. In addition, under the amended IBLP Act, IBLPs may also hold crypto-assets or elec - tronic payment instruments if those digital assets are received as a means of payment in transactions. Real Estate Real estate is not included in the list of assets in which an IBLP may invest under the IBLP Act and may only be held in limited circumstances – specifically, when it has been pledged as collateral for an IBLP’s invest - ment and is subsequently acquired through foreclo - sure. However, an IBLP may hold real estate indirectly if the property is securitised and the IBLP invests by holding trust beneficiary rights in the securitised real estate. By contrast, NKs and TKs are permitted to hold real estate directly, although doing so typically requires obtaining a licence under the Act on Specified Joint Real Estate Ventures. The TMK ( tokutei mokuteki kaisha ), which is a special purpose company estab - lished under the Act on the Securitisation of Assets, is another vehicle frequently used to form a real estate fund in Japan. 2.7 Use of Subsidiaries for Investment Purposes Japanese private equity funds frequently use special purpose vehicles (SPVs) as the direct holding entities for their investment activities. This structure helps to isolate risks and streamline financing arrangements
167 CHAMBERS.COM
Powered by FlippingBook