1. Private Placement Regime in Japan

2. Marketing of Foreign Funds in Japan
Table of Contents
Marketing of Foreign Funds in Japan
Overview
Territorial Scope of the FIEA
Licensing Issues (Fund Management, Solicitation)
Fund Registration Issues
Private Placement Requirements
Others (Disclaimers)
Managed Accounts

3. Marketing of Foreign Funds in Japan

4. Licensing issues (fund management, solicitation)
Issues that Arise in relation to the Marketing of Foreign Funds in Japan
Licensing issues (fund management, solicitation)
Fund registration issues
Private placement requirements
Others (disclaimers)
Rules depend on the type of fund being marketed

5. Marketing of Foreign Funds in Japan – Overview – Types of Funds
Types of Foreign Funds
Foreign Investment Trust fund (“FIT Fund”)
eg, a Cayman unit trust
Foreign Investment Corporation fund (“FIC Fund”)
eg, a Lux SICAV
Foreign partnership type fund (“FPT Fund”)
eg, a Cayman or Delaware limited partnership
Note: For foreign funds that are not familiar in Japan, the fund type may not be clear.

6. Marketing of Foreign Funds in Japan – Overview- Applicable Legislation
Financial Instruments and Exchange Act (“FIEA”): applicable to all types of funds
Investment Trusts and Investment Corporations Act (“ITICA”): applicable to FIT Fund and FIC Fund
Act on Sales, etc. of Financial Instruments (“ASFI”): applicable to all types of funds

7. Marketing of Foreign Funds in Japan – Territorial Scope of the FIEA
The FIEA in principle has a territorial application approach, which is if the activity in issue or the result thereof occurs in Japan (including a party to the transaction in issue residing in Japan), then the FIEA applies.
Even if the marketing activities in issue occur outside of Japan, if a Japanese resident is targeted, then the FIEA applies to the conduct.

8. Legal Issues related to Marketing of Foreign Funds in Japan – Licensing Issues – Marketing
Interests in a FIT Fund, FIC Fund or FPT Fund are all considered securities under Japanese law
Marketing of foreign funds will trigger licensing requirements if the conduct is solicitation

9. Legal Issues related to Marketing of Foreign Funds in Japan – Issues – Marketing – Definition of Solicitation
What is solicitation? Solicitation of securities is broadly defined. What is considered “solicitation” of the acquisition of a security under the FIEA generally and broadly encompasses any activity which may cause or otherwise induce a person to acquire a specific security with the intention to effect a transaction for such acquisition; and whether a particular action falls within the scope of solicitation is determined considering all relevant facts and circumstances.

10. Provision of transactional documents: Yes
Legal Issues related to Marketing of Foreign Funds in Japan – licensing Issues – Marketing – Definition of Solicitation
Provision of PPM: Yes
Provision of transactional documents: Yes
Provision of terms and conditions of a fund: Yes
Informing the past performance of a fund: Yes
Informing the name of a fund: Yes
Name of a closed fund: No
General information of a manager: No
General investment strategy of a manager: No

11. No statutory exemption for reverse inquiry
Legal Issues related to Marketing of Foreign Funds in Japan – Licensing Issues – Marketing – Definition of Solicitation
No statutory exemption for reverse inquiry
The JFSA will not recognize any argument that a Japanese investor who purchased foreign fund interests did so without solicitation unless the investor is a QII and there is supporting factual evidence for that argument

12. Types of required marketing license:
Legal Issues related to Marketing of Foreign Funds in Japan – Licensing Issues – Marketing
Types of required marketing license:
FIT Fund and FIC Fund: Type I registration for third party distribution, Type II registration for self-offering
FPT Fund: Type II registration

13. Examples of Statutory Exemptions
A foreign licensed broker-dealer can solicit the Government of Japan or the Bank of Japan to purchase interests in foreign funds, if the solicitation activities are conducted from outside of Japan;
A foreign broker-dealer can solicit Japanese banks or insurance companies (and other financial institutions listed in the FIEA enabling ordinance) to purchase interests in foreign funds for their own proprietary accounts, if the solicitation activities are conducted from outside of Japan; and
A foreign broker-dealer can solicit a FIEA-registered asset manager acting on behalf of its client or its fund, if the solicitation activities are conducted from outside of Japan.

14. Types of required fund management license:
Legal Issues related to Marketing of Foreign Funds in Japan –Licensing Issues – Fund Management
Types of required fund management license:
FIT Fund and FIC Fund: N/A
FPT Fund: Investment management registration, unless either of the two statutory exemption applies

15. A Example of Statutory Exemption
Foreign asset managers can conduct certain investment management activities from outside of Japan on behalf of a FIEA-registered asset manager acting on behalf of its client or its fund.

16. Legal Issues related to Marketing of Foreign Funds in Japan – Licensing Issues – Fund Management
Exemptions:
Claiming the Article 63 exemption by making necessary filing
Minimal Japanese investment involvement in the fund:
Investment from Japanese investors is no more than 1/3 in aggregate;
Direct Japanese investors are limited to QIIs or filer of Article 63 filing;
Indirect Japanese investors are limited to QIIs; and
Total number of Japanese investors (direct and indirect, if indirect investors are counted excluding direct investor) is no more than 9.
The requirements for minimal Japanese investment involvement is a high-level overview.
An “indirect investor” is defined as a Japanese investor investing through certain forms of investment arrangements.

17. Public Offerings: Registration under the FIEA required
Legal Issues related to Marketing of Foreign Funds in Japan – Fund Registration Issues
Public Offerings: Registration under the FIEA required
Private Placements:
FIT Fund and FIC Fund: Registration under the ITICA required, unless QIIs directly invest through an overseas transaction without any involvement of a Japanese distributor or solicitation
FPT Fund: N/A

18. FCP Fund: Less than 500 investors
Legal Issues related to Marketing of Foreign Funds in Japan –Number of Investors to Be Solicited through Private Placement
FIT Fund and FIC Fund:
Small number exemption: up to 49 Japanese investors with unlimited number of QIIs, subject to statutory transfer restrictions
QII exemption: unlimited number of QIIs, subject to statutory transfer restriction
FCP Fund: Less than 500 investors

19. Statutory selling restriction language, if applicable
Legal Issues related to Marketing of Foreign Funds in Japan – Disclaimers
Statutory selling restriction language, if applicable
General disclaimer

20. Managed Accounts

21. Legal Issues related to Managed Accounts in Japan
Entering into investment management agreement directly with a Japanese investor is a regulated activity under the FIEA
Licensing issues: no exemption
Can be feasible if an asset manager registered in Japan enters into an IMA with a Japanese investor and delegates management activities to foreign licensed manager
If foreign licensed manager has been delegated management activities, that foreign manager is subject to certain Japanese statutory rules

22. 　Thank you
Please feel free to contact: Hidenori Nakagawa, Partner (direct) Kyoko Nagano, Counsel (direct) TMI Associates