A hedge fund represents quite simply an investment partnership. It basically is the cooperation between a fund manager – generally named the general partner – and the investors of the hedge fund – usually named the limited partners. In this article, our company formation advisors in Japan analyze different aspects related to establishing a hedge fund in Japan.
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Hedge fund regulations in Japan
When opening an investment fund in Japan, it is important to know that they are primarily regulated by the Financial Instruments and Exchange Act (FIEA). Usually, the legislation which regulates FIFs (foreign investment trusts) also provides the legal framework for the risk involving such FIFs.
The local legislation does not provide any special requirements related to the risk management of FIFs.
Except for certain small offerings, the sale and offer of securities in the country to Japanese residents requires the registration of these financial instruments with a regional financial bureau.
Offerings in Japan can be:
• Public offerings: involve the solicitation of 50 or more individuals for the sale or purchase of the same security issue within six consecutive months;
• Private placements: these consist of offers to less than 50 individuals of the same security issue.
In connection with setting up a Japanese hedge fund, the registration statements for public offerings and the registration notifications for the private placements have to be submitted to the appropriate financial bureau.
Investment management of assets contributed by investors are exempt from registration or notification duties in the following cases:
1. When an individual contracts a discretionary investment agreement with another Financial Instruments Business Operator, and so on, to entrust all the powers and rights for the investment management and the respective requirements are complied with, and the Financial Instrument Business Operator, and so on, has reported and demanded matters involving the person prior to the beginning of the business;
2. When an individual invests cash, etc., which has been underwrote based on a Silent Partnership Contract signed with another party, in certain conditions;
3. Other cases: our Japan company formation consultants can offer more details on what these other cases consist of.
Trends in the hedge fund sector in Japan
Here are a couple of the trends in the hedge fund sector our company registration agents in Japan consider are worth mentioning:
• In Japan, there are around 100 hedge funds which concentrate mainly on the country, compared with 580 which focus on Asia;
• From the 2,400 companies which are listed in Japan, there are hundreds of shares with an average turnover on a daily basis of more than USD 1 million. The hedge funds in Japan are predicted to present a higher available capacity than Asia ex-Japan ones.
If you need to know more about the hedge fund industry in Japan, or for assistance related to starting a company in Japan, please do not hesitate to speak to our friendly staff.