JAPAN Trends and Developments Contributed by: Yasuzo Takeno, Ken Miura and Nobuharu Onishi, Mori Hamada & Matsumoto
the Cayman Islands) and investment companies (such as SICAVs established in Luxembourg) are subject to certain investment restrictions under the rule of the JSDA, which include but are not limited to the following (note that there is no statutory investment restriction applicable to pri - vately placed non-Japanese investment funds): • short sale (applicable only to non-Japanese investment trusts) – the total market value of securities sold short for the account of such fund shall not exceed its net asset value; • borrowings (applicable only to non-Japanese investment trusts) – borrowing for the account of such funds shall not exceed 10% of its net asset value; • derivative transactions – the global risk amount of outstanding derivative transactions and other similar transactions entered into for the account of a non-Japanese fund, which is to be calculated in accordance with a reason - able method, shall not exceed a certain ratio of their respective net asset value; • credit risk – credit exposures to any single issuer of portfolio securities or counterparty of derivative transactions shall be managed and administered in accordance with a rea - sonable method; • voting rights of a single issuer – acquiring the shares of any one company is not allowed if such acquisition would result in the total num - ber of shares of such company carrying vot - ing rights held by either (a) all foreign invest - ment trusts managed by the same manager or (b) a foreign investment company exceed - ing 50% of the total number of all issued and outstanding shares of such company carrying voting rights; • transparency requirement – this is applica - ble only to non-Japanese investment trusts, which shall not acquire any investment that is not listed on an exchange or not readily
realisable, such as privately placed shares, unlisted shares or real estate if, as a result thereof, the total value of all such investments held by the non-Japanese investment trust would immediately following such acquisi - tion exceed 15% of the latest available net asset value, provided that this restriction shall not prevent any acquisition of an investment where the method of valuation of such invest - ment is clearly disclosed in offering docu - ments; • acquisition of shares issued by itself – this is applicable only to non-Japanese investment companies, which shall not acquire shares issued by themselves; and • inappropriate transactions – non-Japanese investment trusts and investment companies shall not enter into inappropriate transactions that are detrimental to the investors or would be contrary to the proper management of the assets of those funds, including, without limitation, transactions that are intended to benefit the asset manager or any third parties other than investors. As mentioned above, the investment targets of alternative investment funds (eg, real estate, pri - vate equity, private credit) are illiquid and cannot be readily realisable. Therefore, under the trans - parency requirement, the method of valuation of such investment must be clearly disclosed in offering documents in order for alternative investment funds to be publicly offered in Japan. Having said that, it is difficult to precisely cal - culate the value of the investment targets (ulti - mate underlying investments) of alternative investment funds, and there is always a risk that the calculated value and the actual sale price may differ significantly. Thus, it is necessary to describe this consideration as one of the risk factors in offering documents. Needless to say,
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