There has been a marked increase in investments by Japanese investors in foreign real estate funds, but the marketing of such funds in Japan is subject to many regulations, including the Financial Instruments and Exchange Act (FIEA). The following is a brief summary of the two principal regulations applicable to operators of typical foreign real estate funds, such as limited partnerships, investment trusts or real estate investment trusts (Reits) that are established under foreign laws, and which are marketed to institutional or professional investors in Japan.
Regulations applicable to offering businesses
Fund operators seeking to directly solicit interest or units of foreign real estate funds to investors in Japan must comply with certain licensing and registration requirements which apply to securities offering businesses generally. Fund operators are required to obtain FIEA registration or otherwise retain a registered Japanese securities firm (or a securities broker licensed in another jurisdiction but permitted to conduct certain institutional investor solicitations as set forth in FIEA) to conduct such solicitation. For funds classified as collective investment schemes under the FIEA, under which limited partnerships would fall, however, the sophisticated investor exemption may be applicable if at least one qualified institutional investor (QII), as defined under the FIEA, is an investor in the fund, and provided all other requirements applicable under the FIEA are satisfied. It should be noted that solicitation is broadly interpreted because there is no specific definition in the Japanese securities regulations. For this reason, a broad range of actions and conducts in relation to marketing a particular fund may constitute solicitation under Japanese law.
Regulations applicable to investment management business
Operating funds classified as collective investment schemes under the FIEA, that are managed by the issuer itself and that primarily (ie more than 50% of their assets) invest in securities as defined under the FIEA, are required to obtain registration under the FIEA (the so-called self-management regulation). There are certain exemptions from this registration requirement, including the above mentioned sophisticated investor exemption. For foreign investment trusts or foreign Reits there are no fund operator related registration requirements or regulations generally.
The FIEA was amended, with effect from March 1 2016, whereby the requirements to qualify for the sophisticated investor exemption were raised, with relevant operators of funds becoming subject to additional requirements, including conduct-related rules.