investment management sector expects more scandals to emerge as
regulatory scrutiny of the countrys domestic fund
month, Japans Financial Services Agency (FSA) suspended
the operations of money management firm,
AIJ Investment Advisors, after it was unable to account for
the bulk of $2.6 billion in pension funds it managed on behalf
of 123 clients.
suspension follows the $1.7 billion accounting scandal at
Japanese camera maker Olympus,
which raised questions about the prevalence of white-collar
crime in Japan and the ability of Japanese financial regulators
to monitor offenders.
financial services minister, Shozaburo Jimi, last week
described the situation as deplorable and ordered a sweeping investigation into
the finances of 265 other money management companies in
of these investigations fund management companies will be
required to disclose more information on their operations
including whether they had set up investment trust funds
overseas and whether they use external auditors.
Tokyo-based fund manager told IFLR the AIJ incident
had revealed the fundamental weaknesses at the ground level of
Japans pension fund system.
for instance, become commonplace for the countrys mid-
and small-sized pension funds to hire only one or two dedicated
managers, often without the necessary skills or professional
background to manage pension funds.
hires were often former employees of Japans scandal-hit
Social Insurance Agency which, before being abolished and
replaced by the Japan Pension Scheme in 2010, monitored
Japans pension fund policy at the national
smaller funds, without the means to hire from big names such as
Goldman Sachs, ex-employees of the Social Insurance Agency
seemed the best option, the fund manager said. It
was assumed they would be well qualified to do a good
regulations didnt effectively take those facts into
account, he said. And the gaps that developed
between industry assumptions and the regulatory reality created
room for the AIJ to manipulate those systematic
Mori Tomotsunes partner Akihito Nakamachi believed the
could identify other similar incidents.
has been criticised for not monitoring the situation closer.
Thorough investigations are expected as a result to
properly address an issue which has now become the subject of
national debate, Nakamachi
questioned how deep the scrutiny could go.
obvious now that certain small and mid-sized funds do not have
the ability to assess risks and manage themselves so perhaps
they might be better off selling with lower risk and thereby
lower returns, he added.
the FSA imposes too rigid restrictions, for example by limiting
the investment options available to pension funds, it risks
stifling the market.
ruling party, the Democratic Party of Japan, last week
plans to amend laws to require more stringent oversight of
asset management firms in a bid to prevent the recurrence of
Tokyo-based partner at an international law firm, however, was
unconvinced much would change. There will obviously be a
adjustment made. But drastic change would bring with it other
risks, he said, which authorities will understandably want to