JAPAN Trends and Developments Contributed by: David Azcu (Simpson Thacher & Bartlett LLP) and Mikito Ishida (Mori Hamada & Matsumoto), Simpson Thacher & Bartlett LLP
Continuing development of domestic distribution channels for alternative funds Amendment of JITA rules to permit domestic distribution of foreign alternative investment funds to Japanese retail investors At the initiative of the Japanese government, the Japan Investment Trust Association (JITA) liberalised its rules to facilitate the distribution of foreign alter - native investments to Japanese high net worth and retail investors through domestic investment trusts. In 2023, the Japanese government announced its inten - tion to turn Japan into a “leading asset management centre” through a “Basic Policy on Economic and Fiscal Management and Reform”. In accordance with the new Basic Policy, the Financial Services Agency of Japan (FSA) announced the establishment of an Asset Management Task Force, which issued a report in December 2023 calling, among other things, for the diversification of investment options available to Japanese investors and for changes in Japanese self- regulatory organisations to provide expanded access to overseas non-traditional assets, including alterna - tive investment funds. The JITA rules were liberalised in September 2024 to create a path to permit Japanese high net worth and retail investors to invest in foreign alternative invest - ment funds that meet certain qualifications. The first use of the distribution channel opened up to foreign alternative funds under the new JITA rule changes began in 2025, and a handful of foreign fund spon - sors have now used this channel to distribute their funds to high net worth and retail investors in Japan. Interest among foreign sponsors in this domestic dis - tribution channel is high, and there would seem to be significant demand on both the buy and sell side for additional domestic offerings. Although the JITA rules have been liberalised, the path to distributing foreign investment funds to Japanese high net worth and retail investors using Japanese investment trusts remains challenging. In particular, it can be difficult for practitioners to determine whether a target fund can clear the “fund-of-funds” prohibition and meet the other eligibility requirements under the revised JITA Rules. In addition, as distribution is gen - erally effected through a domestic distributor, foreign sponsors of target funds will generally need to nego -
Alternative Funds in Japan: An Introduction Japan remains a bright spot in the midst of a rela - tive slowdown in fundraising globally. Preqin reports that aggregate capital raised by funds focused on Japanese private equity increased by 5.6% in 2024. Globally, Bain & Co. reports that private capital fun - draising remains challenged through the first half of 2025, despite pockets of strength in private credit, infrastructure and secondaries, with average fund sizes trending lower, a drop in the number of funds closing, and longer times spent in the market fund - raising. Within Asia, fundraising remains soft outside of pockets of strength in India and South Korea, while deal activity was robust, led by private credit, accord - ing to Bain & Co.’s Asian Private Equity Report. Uncertainty over the impact of tariffs on inflation, growth and employment, continued volatility in exchange rates and continuing global geopoliti - cal tensions are reportedly weighing on fundraising and investments across many geographies, includ - ing Japan, and continue to make fundraising chal - lenging, particularly for new and emerging managers. The investment thesis for Japan, however, appears to remain strong, with a number of first time Japan- focused buyout funds reaching (or expected to reach) their hard caps, and a number of real estate and logis - tics funds either reaching their hard caps or in the mar - ket in 2025. Continued tightening of the Tokyo Stock Exchange listing standards, together with increasing interest rates, has also helped to strengthen the emer - gence of other asset classes, including minority public investments and private credit, showing the evolution and development of the domestic industry. In addition, the slow but meaningful opening of Japanese retail and high net worth distribution channels to foreign alternative investment funds continues to attract the interest of foreign sponsors. However, risk and uncertainty remain on the horizon for the Japanese alternative investment industry. The impacts of US tariffs and the US–Japan trade deal, concerns over inflation, Japanese public debt, infla - tion, the continued historic weakness of the Japanese yen and the overall strength of the economy, coupled with the rise of opposition parties in government, may weaken otherwise bullish sentiment or Japanese alter - native investments, particularly from foreign investors.
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