JAPAN Law and Practice Contributed by: Mikito Ishida (Mori Hamada & Matsumoto) and David Azcu (Simpson Thacher & Bartlett LLP), Mori Hamada & Matsumoto
FIEA must file a notice of such circumstances with the FSA. In addition, FIBOs are required to notify the FSA of changes in their parent company (eg, a new parent company, or a change in the name or address of the
states that whether an arrangement would be deemed a “special benefit” would be determined on a case- by-case basis, considering the reasonableness of the benefit under generally accepted social norms. As a practical matter, side letters are an integral part of private funds practice in Japan, and rights that are typically agreed to by sponsors in the market seem unlikely to constitute such a “special benefit”, but it is unclear whether this “special benefit” prohibition has ever been tested and to precisely what kind of unique rights or benefits it might apply. 4.3 Marketing of Alternative Funds to Investors Please see 2.2 Regulatory Regime for Funds for information on the marketing of alternative funds to investors. 4.4 Rules Concerning Marketing of Alternative Funds Please see 2.2 Regulatory Regime for Funds and 2.3 Disclosure/Reporting Requirements regarding the rules concerning the marketing of alternative funds. 4.5 High Net Worth or Retail Investors Until recently, Japanese retail and high net worth investors have not been significant investors in pri - vate equity funds. This has been due in part to regu - latory restrictions, such as the rule under the Article 63 Exemption that only allows fewer than 50 Japa - nese non-QII investors to invest in a partnership-type fund, and regulatory limitations that made it difficult to distribute foreign alternative funds to Japanese retail and high net worth investors in a form that would be familiar to such investors. Recently, however, securities firms and a few major pri - vate equity fund sponsors have increasingly focused on marketing to high net worth and retail investors. In particular, some securities firms now offer investment trust products that repackage private equity funds, making them accessible to a broader base of high net worth investors. Rule changes at the Japan Invest - ment Trust Association that took effect at the end of 2024 also now permit domestic securities firms to dis - tribute domestic investment trusts that invest in cer - tain target foreign alternative investment funds, and
existing parent company). 3.10 AI and Use of Data
There are no specific regulations applicable to fund managers in relation to AI and the use of data. How - ever, fund managers are subject to the Guidelines for the Protection of Personal Information in the Financial Sector at the same level as other financial institutions, such as banks. 3.11 Anticipated Changes for Fund Managers No substantial changes to the regulations relating to private equity fund managers are expected in the short term. 4. Investors 4.1 Types of Investors in Alternative Funds Traditionally, Japanese banks and large trading com - panies have been the principal investors in private equity funds. However, recent regulatory reforms have enabled pension assets – most notably the Govern - ment Pension Investment Fund (GPIF) – to take a more active role in private equity investing. In addition, the Japanese private equity market has increasingly attracted non-Japanese investors, some of whom invest directly into funds established under Japanese law. 4.2 Side Letters Side letters are widely used by Japanese investors, particularly institutional investors that are subject to regulatory restrictions on their private equity fund investments. At present, there are no specific rules in Japan that govern the use of side letters. However, there are a few caveats. A side letter may not provide a limited partner with economic advan - tages deemed to be a “special benefit” ( tokubetsu no rieki-teikyō ), as such arrangements are prohibited under the FIEA. Unfortunately, there is no clear guid - ance on what constitutes a “special benefit.” The FSA
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