Japan: An Overview Of The Rules And Regulations Governing The Private Placements Of Fund Interests In Japan

Last Updated: 11 July 2019
Article by Koji Yamamoto and Yoshiyuki Omori


With the prevailing low interest rates, Japanese asset allocators have increasingly turned to offshore investment funds for target returns, resulting in Japan remaining as a key jurisdiction for offshore fund managers seeking to raise capital.

However, due to the complexities of Japan's regulatory regime in comparison to other jurisdictions, offshore fund managers often find it difficult to fully comprehend the nuances of the Japanese regulations surrounding the solicitation and marketing of fund interests to investors in Japan.

This article is intended to provide a broad overview of the regulatory framework of Japan in connection with the private placement of fund interests to Japan-based investors.

A. The Financial Instruments and Exchange Act of Japan

The Financial Instruments and Exchange Act of Japan (the FIEA) is the primary regulation in Japan which governs the various financial instruments business activities – including the marketing of fund interests.

Under the FIEA, there are four primary financial instruments business registrations as set forth below:

1. Type 1 Financial Instruments Business Operator (a Type 1 Dealer);

2. Type 2 Financial Instruments Business Operator (a Type 2 Dealer);

3. Discretionary Investment Management Business Operator (a DIM); and

4. Investment Advisory and Agency Business Operator (an IAA)

To properly understand the permissible scope of activities under each of the registrations set forth above, it is first necessary to understand that "securities" are broadly divided into two separate categories under the FIEA.

Securities defined under Article 2, Paragraph 1 of the FIEA (Paragraph 1 Securities) are financial instruments such as shares of capital stock companies, bonds, units of investment trusts, shares of investment corporations, warrants and commercial paper. While Paragraph 1 Securities are frequently referred to as liquid securities, liquidity is not a factor in this categorisation.

Paragraph 2 Securities are financial instruments defined under Article 2, Paragraph 2 of the FIEA and include beneficial interests of a trust (excluding units of investment trusts), interests in limited partnerships, limited liability partnerships and limited liability companies.

Turning back to the financial instruments business registrations discussed above, as a general matter, any entity wishing to engage in the business of marketing securities to investors in Japan must register with the Financial Services Agency of Japan (the JFSA) as either a Type 1 Dealer or Type 2 Dealer. A Type 1 Dealer is permitted to market Paragraph 1 Securities in Japan while a Type 2 Dealer is permitted to market Paragraph 2 Securities in Japan.

The other two major registrations under the FIEA are the DIM registration and the IAA registration.

The DIM registration permits the registrant to engage in a discretionary investment management business – which traditionally refers to the making of trades or investment decisions in Japan. However, in recent years, this registration is increasingly being used by fund managers as an indirect way to raise capital from Japan-based investors, particularly pension funds.

The IAA registration allows the holder to conduct two activities – providing non-discretionary investment advice to a third party about the value of securities and investment decisions; and acting as an intermediary or agent for a party which is entering into investment advisory or investment management agreements.

B. Private Placement of Fund Interests in Japan

It should be noted that the rules and regulations applicable to the private placement of Paragraph 1 Securities differs significantly in comparison to Paragraph 2 Securities.

B1. Paragraph 1 Securities

As a general rule, any marketing of Paragraph 1 Securities to a Japan-based investor may only be undertaken by a Type 1 Dealer.

In connection with such marketing activities by a Type 1 Dealer, a determination must be made as to the specific model of private placement which will be applicable to the offering of the Paragraph 1 Securities in question.

Under the FIEA, there are four models of private placement for Paragraph 1 Securities as described below.

(i) Small Number Private Placement (shouninzu-shibo) Up to 49 solicitations over a six-month period with certain transfer restrictions.

(ii) Hybrid Private Placement (kakudai-shouninzu-shibo) A derivative of placement model (i) above, pursuant to which up to 49 solicitations over a six-month period may be made but any solicitations to qualified institutional investors (QIIs) are excluded from counting such 49 solicitations.

(iii) QII Private Placement (tekikaku-kikan-toushika-shibo) An unlimited number of solicitations but only to QIIs with certain transfer restrictions.

(iv) Professional Investor Private Placement (tokutei-toushika-shibo) Unlimited number of solicitations but only to professional investors with certain procedural and transfer restrictions.

The election of the specific model of private placement will impact the specific disclosures and transfer restrictions which may be applicable to the private placement in Japan.

In addition, prior to any marketing activities by a Type 1 Dealer of an investment fund whose interests are Paragraph 1 Securities, the investment fund may be required to make a filing to the JFSA pursuant to the Act on Investment Trusts and Investment Corporations of Japan (the ITIC Notification). The ITIC Notification is a Japanese language filing that summarises the material terms of the fund, the Japan offering and its various service providers. The contents of the ITIC Notification are not available to the public as ITIC Notification is strictly for the reference of the JFSA.

Type 1 Dealers are prohibited from engaging in any marketing activities of the investment fund in Japan until the fund has submitted an ITIC Notification to the JFSA.

B2. Paragraph 2 Securities

As a general rule, any marketing of Paragraph 2 Securities to a Japan-based investor may only be undertaken by a Type 2 Dealer. However, it should be noted that the definition of a private placement varies significantly for Paragraph 2 Securities in comparison to Paragraph 1 Securities as the FIEA defines a private placement of Paragraph 2 Securities as any offering in Japan which has 499 or fewer Japan subscribers.

It should be noted that the ITIC Notification is not necessary for the offering of Paragraph 2 Securities to Japan-based investors.

C. Common Exemptions

There are certain exemptions which offshore fund managers may seek to rely on in relation to any contemplated fund marketing activities in Japan.

C1. The Foreign Securities Firm Exemption

Article 58-2 of the FIEA allows a foreign securities firm to engage in limited scope of securities marketing towards a Japan-based investor without being registered as a Type 1 Dealer or Type 2 Dealer (the Foreign Securities Firm Exemption). The marketing restrictions imposed by the Foreign Securities Firm Exemption will vary based on the type of investor that the foreign securities firm is seeking to market to in Japan.

With respect to most types of Japan-based investors, this exemption does not allow the foreign securities firm to engage in any onshore marketing activities in Japan (i.e. visits to Japan) as this exemption generally limits the foreign securities firm to engage only in offshore marketing activities into Japan (phone calls or e-mails).

Where the specific investment fund interests sought to be marketed under this exemption are Paragraph 1 Securities, the relevant fund in question would be required to submit an ITIC Notification to the JFSA.

C2. The Article 63 Exemption

In connection with the marketing of interests in limited partnerships to Japan-based investors, a commonly relied on exemption is the "Special Permitted Businesses directed at Qualified Institutional Investors" as set forth under Article 63 of the FIEA (the Article 63 Exemption).

The Article 63 Exemption permits the general partner of a limited partnership fund to engage in two registered activities: (i) 'self-offering' (jiko-boshu) of the limited partnership interests to Japan-based investors; and (ii) 'self-management' (jiko-unyo) of the assets of the Japan limited partners. These two activities would typically require the general partner to be registered as a Type 2 Dealer and as a DIM, respectively, under the FIEA.

The Article 63 Exemption remains as a popular method used by general partners of offshore limited partnership funds to distribute their fund interests into Japan without having to register as or appoint a Type 2 Dealer. However, as of 1 March 2016, the Article 63 Exemption was significantly overhauled to raise the requirements of general partners operating under this exemption.


Despite the complexities of the Japanese regulatory framework, there have been significant capital-raising activities in Japan in the last few years. Japan-based investors and investment allocators are increasingly looking to offshore fund managers to achieve target returns and Japan is expected to continue to be a key allocator for investment funds in the future. Knowing how to navigate the regulatory landscape in Japan will thus be essential to offshore fund managers to engage in successful capital raising activities in Japan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions