Fund Scheme

Collective investment schemes

There are various legal forms for funds, including collective investment schemes (partnerships, limited partnerships, etc.), investment trusts, and corporate structures (investment corporations, TMK, etc.).
The term “fund” does not have a specific legal definition in Japan. Therefore, it is necessary to first understand the specific goals of the fund organizers and choose the most appropriate scheme. In this article, we primarily explain the concept of funds and the support services provided by our firm to financial institutions considering the set up and formation of funds.

Types of Funds

Although the term “fund” is used broadly, funds can generally be categorized into three main types: partnership-type funds, investment trust-type funds, and corporation-type funds.

The licenses required for the formation, sale, and management of funds also vary depending on their nature and characteristics. They may include Type I or Type II Financial Instruments Business, Investment Management Business, Specified Joint Real Estate Ventures Permission, Commodity Investment Adviser Business Permit, among others.

The following sections provide information on the necessary licenses, the time required to obtain them, and an estimate of the associated costs for each case.

Partnership-Type Funds

Funds primarily engaging in securities or derivative transactions

When regulatory authorities use the term “fund,” they often refer to partnership-type funds. Partnership-type funds are also known as “collective investment schemes.”

For the establishment of funds that primarily invest in listed and unlisted stocks, bonds, Nikkei 225 futures, FX, and other investment products (securities or derivative transactions) on a small to medium-sized scale, it is common to utilize partnership contracts such as silent partnerships or investment limited partnerships.

In such cases, there are several methods available, including registration as Type II Financial Instruments Business and Investment Management Business, formation based on the business exceptions for Specially Permitted Businesses for Qualified Institutional Investors, etc. or the Specially Permitted Businesses for Foreign Investors, etc. primarily targeting foreign investors.

Registration for Type II Financial Instruments Business and Investment Management Business takes more than 1 year, and it requires 5 to 6 experienced employees. Additionally, the licensing fees can amount to several million JPY or more, but it allows for broad solicitation to general investors. On the other hand, for Specially Permitted Businesses for Qualified Institutional Investors, etc., the notification process takes about 1 to 2 months, with costs in the range of hundreds of thousands of JPY, and there are no employee requirements. However, the number of eligible investors is limited to a small group of professionals. Specially Permitted Businesses for Foreign Investors, etc. is less common and still relatively unstable in practical terms.

Business-Type Funds

For funds that primarily invest in physical assets such as renewable energy, factoring, ships, and aircraft, rather than securities or derivative transactions, it is common to establish in the form of silent partnerships.

Solicitation for such funds requires registration as a Type II Financial Instruments Business which requires a minimum of 3 experienced personnel.

Other Fund Types

Physical real estate funds require approval from the Ministry of Land, Infrastructure, Transport, and Tourism in Japan and are subject to different regulations stated as above. And the requirements for licensing and permissions may vary depending on the nature of the fund’s operations. For the establishment of loan-type fund requires a license based on the Money lending business Act, and for the formation of commodity fund requires authorization as a commodity investment advisor, among others.

Investment Trusts Funds

When raising funds from investors in the form of investment trusts for distribution, it is necessary to have investment management business operations (such as investment management business or discretionary investment business) for the fund’s operation. Also, when soliciting for investment trust beneficiary securities through agency sales, it is necessary to conduct such activities through a Type I Financial Instruments Business, and if investment management corporations directly sell to investors, registration as a Type II Financial Instruments Business is required.

Registration for Type II Financial Instruments Business and Investment Management business take more than 1 year, and it typically requires around 5 to 6 experienced employees. Similar levels of effort are needed for registration as a Type I Financial Instruments Business. The license acquisition cost is usually several million JPY or more.

However, in the case of investment management business operators for qualified investors, who handle investment trusts that are managed based on discretionary investment agreements, there is a provision that allows solicitation to be considered as Type II Financial Instruments Business instead of Type I. With Type II Financial Instruments Business registration, handling the investment trust securities becomes possible.

Corporation-type Funds

Corporation-type funds come in three forms: investment corporations based on the Act on Investment Trust and Investment Corporation, using specified purpose companies (TMK), and using general corporations as convenient investment vehicles (SPC).

In the case of investment corporations, they are established based on the Act on Investment Trust and Investment Corporation. Solicitation for such funds, registration as a Type I Financial Instruments Business, and for management, registration as an Investment Management Business is requires. Real estate investment trust (REIT) fall into this category. Registration as an Investment Management Business takes more than 1 year, and it typically requires around 5 to 6 experienced employees. Additionally, similar levels of effort are needed for registration as a Type I Financial Instruments Business. The license acquisition cost is usually several million JPY or more.

Specified purpose companies (TMK) are a special legal entity form based on the Act on the Securitization of Assets, which is used to securitize assets such as real estate. They are primarily utilized for real estate securitization purposes and are commonly referred to as TMK.

On the other hand, when using a general corporation as an investment vehicle (SPC), corporate bonds, offshore corporate stocks, and other similar forms are commonly utilized. In such cases, if the fundraising is conducted solely by the company’s officers and complies with private placement restrictions, there is no specific requirement for permits or registrations, making it the least restrictive form of fund formation. The process typically takes around 1 to 2 months, and the costs involved are relatively low, ranging from several hundred thousand JPY.

Fund Formation Support by Our Firm

Our firm provides support for asset management businesses through our high expertise in securities and financial-related services with reliable organizational administrative processes.

Our firm has a wide range of experience in supporting the development of collective investment scheme funds, as well as obtaining registration for investment trust management businesses and conducting private procedures for foreign investment trusts (fund registration). We are well-equipped to assist with various aspects of asset management businesses.

Also With a track record of successfully coordinating the formation of complex cross-border funds, including offshore schemes such as those in the Cayman Islands, Labuan, and BVI, collaborated with external firms specializing in international affairs, and we constantly gather information on regulatory trends and industry directions, enabling us to provide accurate advice on regulatory developments.

Duration of Registration

The duration varies significantly depending on the type of union, licenses, and the targeted investor base. Detailed information is provided in the respective sections of the fund types mentioned above. In general, obtaining registration for financial instruments business tends to take a significant amount of time. In the case of institutional investors, there may be room to commence operations in about 6 months, while for general investors, the process can take more than 1 year, and the procedural period tends to be longer.

In contrast, for special operations such as the Specially Permitted Businesses for Qualified Institutional Investors, etc. or the scheme of corporation-type funds that do not require registration for financial instruments business, it is possible to complete the formation process in approximately 1 to 2 months.