JAPAN Trends and Developments Contributed by: David Azcu (Simpson Thacher & Bartlett LLP) and Mikito Ishida (Mori Hamada & Matsumoto), Simpson Thacher & Bartlett LLP
tiate distribution terms with the domestic distributor to assure their ability to satisfy their own regulatory requirements and harmonise terms such as redemp - tion timing and reporting. Distribution of foreign alternative investment funds via offshore vehicles The distribution of foreign alternative investment funds via existing domestic distribution channels is not the only path through which Japanese investors can access foreign alternative investment products. A less challenging method is to use an offshore vehi - cle – typically a Cayman unit trust – to acquire inter - ests in the target foreign alternative investment fund. Typically, a domestic distributor or intermediary forms and/or manages the Cayman unit trust and distributes the units therein to its domestic investors, who may be institutional investors or high net worth investors. Unlike distribution through a domestic investment trust, as discussed above, which is subject to the JITA rules, units in a Cayman unit trust are not subject to JITA rules, although the sale and distribution of such units are still subject to regulation by the Japan Secu - rity Dealers Association (JSDA). The types of target funds into which a Cayman unit trust can invest are not limited as under the JITA rules, meaning that the use of such an offshore conduit can expand the types of alternative investment products that can be distrib - uted through this channel. On the other hand, the universe of potential Japanese investors tends to be much smaller for Cayman unit trusts than for Japanese investment trusts, meaning that distribution through this channel has generally been limited to institutional investors and high net worth individuals. Efforts to promote Japanese investor access to alternative investment products generally The Japanese government’s efforts to broaden invest - ment options for retail investors have not been limited to foreign investment funds. In 2024, the government revised the Nippon Individual Savings Account system (NISA), which is a tax-advantaged investment pro - gramme designed to encourage individuals to save and invest in financial assets, including equities and alternative investments. The system exempts profits
earned on holdings in NISA accounts from capital gains and dividends, and is broadly available to indi - vidual Japan residents over the age of 18, regardless of nationality. Modelled on the UK Individual Savings Account sys - tem, the programme is intended to shift high Japanese cash savings towards equities and alternative invest - ments, to encourage long-term asset growth. This fol - lows the mid-2010’s shift in the investment mandate for the Government Pension Investment Fund (GPIF) towards equities and alternatives. The rationale for these shifts is that higher returns are necessary to support Japan’s aging population, noting that Japan had a long period of zero or negative interest rates, and traditional investment options had performed rel - atively poorly compared to equities and alternatives. Expansion of private equity into public markets Another theme emerging in Japanese private equity is the expansion of private equity into the public sector, through an increase in the number of funds focusing on Private Investments in Public Equity (PIPEs), minor - ity engagement strategies and take-private transac - tions. The incremental tightening of listing rules, corporate governance, MBO and M&A regulations at the Tokyo Stock Exchange, which has become an increasingly active regulator in recent years, has led to a refocus by listed conglomerates on core businesses, an increase in the number of listed companies in danger of being delisted, and increasing opportunities for private fund investors focusing on Japan. In practical terms, these reforms have led to a substantial decrease in the traditional cross-shareholding of the main banks, decreasing from a historical average of 10% to 15% to an estimated 2% to 3% today, due to the increasing presence of outside board members. Against this backdrop, an increasing number of activist and collaborative “engagement” funds have entered the market, seeking to make influential minority invest - ments in publicly listed companies in Japan. This has led to both big investments (eg, Blackstone’s offer for TechnoPro, and EQT’s offer for Fujitec, to name a few) and some fireworks (eg, Kaname Capital’s opposition
176 CHAMBERS.COM
Powered by FlippingBook