Japan: An Investment Funds: Bengoshi Overview

Continued Government Efforts for Promoting Japan as a Leading Asset Management Centre

Japan is undergoing a significant transformation in its investment funds landscape, driven by a series of government-led reforms and regulatory updates. These efforts are part of a broader strategy to position Japan as a premier asset management hub in Asia, attracting both domestic and international fund managers and investors. The recent and upcoming changes to laws and regulations are expected to have impacts on the industry, enhancing its competitiveness and flexibility.

Key regulatory reforms effective as of May 2025

A major milestone in the transformation is the set of amendments to the Financial Instruments and Exchange Act (FIEA), which took effect on 1 May 2025. These reforms are designed to lower operational barriers and provide greater flexibility for investment managers operating in Japan. Notable changes include the following.

• Outsourcing of middle- and back-office functions – registered investment managers are now permitted to outsource middle- and back-office functions, including compliance. This change addresses the human resource challenges faced by many managers and allows them to focus on core investment activities.
• Use of sub-managers – the requirement for investment managers to perform asset management functions in-house has been relaxed. Managers can now choose not to have asset management functions in-house and retain sub-managers, enabling them to concentrate on planning, structuring, and supervising investment strategies rather than day-to-day execution.
• Relaxed registration for Limited Type I FIBO – the requirements for registration as a Type I Financial Instruments Business Operator (Type I FIBO) have been eased for those soliciting only professional investors and certain designated investors to invest in unlisted securities. The new “Limited Type I FIBO” regime exempts these managers from some of the more burdensome regulations, providing more options for fund marketing in Japan.

These reforms collectively offer greater flexibility in business planning and staffing, benefiting both new entrants and established managers seeking to optimise their Japan operations.

Government initiatives to enhance flexibility and facilitate use of Japanese limited partnerships

The Limited Partnership Act for Investment (LPS Act) provides for an Investment Limited Partnership (Japan LPS) system, which is often used in practice as a Japan domiciled limited partnership vehicle for investment funds. The Japanese government has recently been taking various measures to enhance flexibility and facilitate the use of the Japan LPS.

First, various amendments were made to the LPS Act, effective September 2024 and April 2025, to expand the scope of investment activities that the Japan LPS can engage in. The restriction for the Japan LPS to limit investment in foreign companies to less that 50% of the contributed fund assets is now lifted for foreign companies that are under certain prescribed control of Japanese companies or individuals. Furthermore, the Japan LPS can now invest in crypto-assets and equity interests in Godo Kaisha (which is a Japanese corporate form similar to a limited liability company).

In June 2025, the Ministry of Economy, Trade and Industry (METI), which is the government authority overseeing the LPS Act, published updated versions of the model limited partnership agreement (LPA) for the Japan LPS with their commentaries. The updated package includes Japanese language and English language versions of the model LPA and the commentaries of each version. There are two versions of the Japanese language model LPA, one for use where contemplated LP investors include foreign investors, and another simpler version for use where only Japanese domestic LP investors are contemplated. The model LPA was last updated in 2018, and the 2025 update incorporates various important features in the LPA reflecting the evolving fund practice over the past seven years. For example, the model LPA now includes provisions regarding subscription finance, co-investment vehicles and special limited partners, to accommodate recent fund practices in these areas.

Lastly, in July 2025, METI published its commentary on the LPS Act, which provides useful guidance on METI’s interpretation of the Act with respect to various practical issues for which the statutory interpretation had previously been unclear. For example, the commentary provides METI’s views on permissibility of fund-of-fund structures, limited partner claw-back provisions, and issuance of multiple classes of LP interests.

It is expected that these initiatives will lead to more investment funds selecting the Japan LPS as their fund vehicle.

Notable changes to the large shareholding reporting system

The 2024 amendment to the FIEA, including related ordinances (the “Amendment”), which takes effect on 1 May 2026, includes changes and clarifications relating to the large shareholding reporting system in Japan.

Promotion of dialogue between investee companies and institutional investors

The Amendment seeks, among other things, to promote greater dialogue between investee companies and institutional investors, thereby facilitating increased medium- to long-term investments and sustainable corporate growth. To achieve this, several clarifications are introduced.

One clarification relates to acts of Material Proposal (Juyo-teian-koui) which affects the reporting obligations of certain financial institutions that seek to qualify under the reporting exception system under the FIEA. The reporting exception system allows certain financial institutions who regularly execute buy/sell transactions (such as investment managers, banks and insurance companies) to use a less frequent and simplified reporting system. However, the reporting exception system is not available to those engaging in acts of Material Proposal. The amendments and detailed Q&As providing clarification on what constitutes Material Proposal are expected to promote sustained investor–company dialogue.

Additionally, the definition of substantive joint holders (ie, shareholders collaborating to jointly acquire/dispose of their shares or exercise their shareholder rights) is clarified to allow for more flexibility in collaborative engagements among institutional investors. Under the Amendment, agreements to co-ordinate the exercise of voting or other rights are excluded from substantive joint-holder determination if specified conditions are met. In addition, the collaborative engagement exemption is newly introduced, under which institutional investors co-ordinating on a vote-by-vote basis, without the purpose of acts of Material Proposals, are not deemed substantive joint holders per se.

Development of derivatives trading regulations

Under new regulations governing derivatives transactions, a person holding a position for a long time in equity-related derivatives will be treated as a “holder” if such person has a certain purpose for doing so, including acquiring shares, pursuing important proposals, or influencing voting outcomes. Additionally, the new regulations clarify the method for calculating the holding ratio by addressing calculations of shares that are not owned in fact but owned as options at the contract-unit level. These changes are intended to increase clarity around derivative-based stake accumulation.

Expanded scope of deemed joint holders

The scope of deemed joint holders is expanded beyond traditional personal and capital relationships to include “special relationships” evidenced by certain external facts, such as concurrent officer positions or financial ties. This broadened standard may increase situations triggering reporting obligations.