JAPAN Trends and Developments Contributed by: Yasuzo Takeno, Ken Miura and Nobuharu Onishi, Mori Hamada & Matsumoto
A limited partnership (sometimes referred to as a partnership type investment fund) is mainly utilised for the purpose of private equity invest - ments and infrastructure investments. This type of investment fund is not so common for Jap - anese retail investors, and most investors are institutional. As with other types of investment funds, not only Japanese domestic funds but also limited partnerships established outside Japan are offered in Japan. A certain number of limited partnerships established outside Japan were recently introduced for wealthy individuals through feeder vehicles such as a Cayman unit trust on a private placement basis. Alternative investment funds For a long time, most of the investment funds sold to retail investors only invested in tradition- al assets and their derivatives, while alternative investment funds were sold only to institutional investors in Japan. There are several reasons for this, but one of the most important is that alter - native investment funds are considered to carry a greater degree of risk than traditional invest - ment funds, and should therefore only be sold to institutional investors with a high risk tolerance. However, especially in an environment of extremely low interest rates in Japan, the poten - tial for greater returns of alternative investments is very attractive not only to institutional inves - tors but also to high net worth individuals, and in the current situation where it is difficult to make a profit by investing in traditional assets such as bonds, more and more wealthy individuals are willing to take risks and invest in potentially profitable products. For this reason, the public offering of alterna - tive investment funds targeted specifically at high net worth individuals has begun to be con - sidered by distributors and asset managers in
Japan; in fact, a non-listed US REIT was publicly offered in Japan through a Cayman unit trust in 2022. This trend has spread not only to real estate investment, but also to private equity and private credit. In 2023 and 2024, Cayman- domiciled mutual funds that substantially invest in these asset classes were publicly offered in Japan. Generally, investment funds solicited in Japan do not invest directly in these alternative assets but rather in alternative investment funds (ie, in the form of a fund of funds) or performance-linked notes whose performance is linked to alternative investments. Considerations for investing in alternative investment funds It may be true that alternative investment funds offer investors potentially large profit opportu - nities. However, it is also true that alternative investment funds have several considerations that are generally not found in traditional invest - ment funds, including: • higher fees; • significant initial investment requirements; As discussed below, publicly offered funds are subject to strict investment restrictions, but it is possible under the laws of Japan to publicly offer alternative investment funds, provided that the key characteristics of alternative investment funds are disclosed in an appropriate and suf - ficient manner to enable investors to make accu - rate investment decisions. Investment restrictions Publicly offered non-Japanese investment trusts (such as an FCP in Luxembourg or a unit trust in • low liquidity; and • low transparency.
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