JAPAN Law and Practice Contributed by: Kunihiko Morishita, Masayuki Hashimoto and Koichi Miyamoto, Anderson Mori & Tomotsune
1. Market Overview 1.1 State of the Market
ally treated as pass-through entities for Japa - nese taxation purposes. Furthermore, offshore collective investment schemes such as Cayman limited partnerships and Luxembourg common and special limited partnerships are preferred in cross-border transactions because of their flex - ibility and global recognition. 2. Alternative Investment Funds 2.1 Fund Formation 2.1.1 Fund Structures While there is no specific category analogous to alternative investment funds under Japa - nese law, privately placed investment funds are used in practice to provide alternate investment opportunities to Japanese investors. With respect to publicly offered investment trusts/corporations, the Investment Trusts Asso - ciation, Japan (ITAJ – a self-regulatory organi - sation of investment trust managers and asset management companies for investment corpo - rations) provides detailed requirements on the management and administration of portfolio assets of publicly offered investment trusts/cor - porations. Please see 3.3.1 Regulatory Regime for more details on the rules of the ITAJ. On the other hand, privately placed investment trusts/corporations are often created and tailored to meet specific investment purposes, strate - gies and risk allowances of potential investors. In addition, collective investment schemes are, in general, offered by way of private placement because of their nature and their high flexibility in terms of their organisation, capital structure, types of underlying assets, dividend policies and fee schedules.
Financial assets held by Japanese households have been increasing steadily for years, now reaching over JPY2,100 trillion. Building on this, a number of various types of investment funds are being marketed, offered and distributed in the Japanese market. The most widely used form of investment fund in Japan is an invest - ment trust ( toushi shintaku ), created pursuant to the Act on Investment Trusts and Investment Corporations of Japan (the Investment Trusts Act), which is offered on both retail markets (through public offerings) and institutional mar - kets (mostly through private placements). The Investment Trusts Act also provides for an investment corporation ( toushi houjin ), which is typically used for real estate investments and is popularly known as a Japanese Real Estate Investment Trust (J-REIT). This is something of a misnomer given that all existing J-REITs use the form of an investment corporation rather than being structured as trusts. In addition, offshore investment funds domiciled in jurisdictions such as the Cayman Islands, Luxembourg and Ireland and qualified as for - eign investment trusts/corporations under the Investment Trusts Act have long been used to provide access to the global market for Japa - nese investors. Lastly, collective investment schemes such as investment limited partnerships under the Lim - ited Partnership Act for Investment of Japan (LPAI) and silent partnerships under the Com - mercial Code also account for a substantial por - tion of investment funds in certain areas, such as private equity funds, as do leasing funds such as aircraft leasing funds, because those are gener -
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