JAPAN Law and Practice Contributed by: Kunihiko Morishita, Masayuki Hashimoto and Koichi Miyamoto, Anderson Mori & Tomotsune
2.2 Fund Investment 2.2.1 Types of Investors in Alternative Funds For both QII Placements and Professional Inves - tor Placements, permitted investors are limited to qualified institutional investors and Profes - sional Investors, respectively, as defined in the FIEA. Please see 2.3.6 Rules Concerning Marketing of Alternative Funds regarding the requirements of private placement and 2.3.7 Marketing of Alternative Funds for the scopes of QIIs and Professional Investors. With respect to privately placed investment funds, most investors are persons who have knowledge and experience of investment in investment funds, such as banks, insurance companies, trust companies, Registered Finan - cial Instruments Business Operators (as defined in 2.3.2 Requirements for Non-Local Service Providers ), wealthy individuals and general busi - ness companies with sufficient cash supplies. 2.2.2 Legal Structures Used by Fund Managers Please see 2.1.2 Common Process for Setting Up Investment Funds . 2.2.3 Restrictions on Investors Please see 2.3.7 Marketing of Alternative Funds . 2.3 Regulatory Environment 2.3.1 Regulatory Regime Most investment trusts are established as secu - rities investment trusts for Japanese taxation purposes. In order to be qualified as a securities investment trust, a trust must invest more than half of its assets in securities (excluding certain “deemed securities” such as trust beneficiary interests in a trust and interests in a collective investment scheme such as an investment lim -
ited partnership) and securities-related deriva - tives. The rules of the ITAJ require a real estate invest - ment corporation to prescribe in its certificate of incorporation that its purpose is to invest more than half of its assets in real estate, lease rights and other real estate-related assets, such as asset-backed securities, more than half of the underlying assets of which are real estate and lease rights. An investment limited partnership may acquire and hold stocks in joint stock companies ( kabu - shiki kaisha ), bonds issued by or loans issued to business entities, and other properties that facili - tate the business of the entities. However, under the LPAI, unless the approval of the competent authorities is obtained, such a partnership is prohibited from acquiring and holding shares or convertible bonds in foreign companies to the extent that such securities represent half or more of its assets. 2.3.2 Requirements for Non-Local Service Providers The FIEA provides four categories of financial instruments businesses: • type I financial instruments business; • type II financial instruments business; • investment management business; and • investment advisory business. A person intending to be engaged in any such business must be registered under the FIEA as a Registered Financial Instruments Business Operator. Type I and II financial instruments busi - nesses are involved in the services of brokerage, intermediary activity and the trading of liquid and illiquid securities (as the case may be) and their derivatives.
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