METI'S NEW STUDY GROUP ON INVESTMENT FUNDS

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 000644

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E.O. 12958: DECL: 03/10/2013
TAGS: EINV ECON OECD JA
SUBJECT: METI'S NEW STUDY GROUP ON INVESTMENT FUNDS

REF: A. TOKYO 408


B. TOKYO 402

C. TOKYO 317

D. 07 TOKYO 3689

Classified By: Ambassador J. Thomas Schieffer. Reason 1.4 (b)(d)


1. (C) Summary: A new METI study group, composed largely of
investment banking or investment funds executives, will
examine best practices of the most common types of investment
funds and consider whether new GOJ policies are needed to
support them in providing risk capital to Japanese companies.
METI officials insist the group will not propose limiting
funds' activities and describe the group's objective as
educating Japanese business leaders, the media, and the
public, about the important role funds play in modern
corporate finance. It appears unlikely the group will
advocate creating new impediments to funds operating in
Japan. End Summary


2. (C) The Ministry of Economy, Trade and Industry (METI)
established an Investment Funds Study Group in response to
widespread Japanese misunderstanding about the role
investment funds play in modern corporate finance, according
to Yoshinori Komiya, Director of METI's Industrial Finance
Division. The group held its first meeting February 29 and
will issue a final report by the end of May.


3. (C) Briefing Finatt and Econoff March 7, Komiya said his
division had asked the study group to address two key topics.
First, the group should clarify the important role
investment funds play in collecting and allocating risk
capital and, connected with this, identify best practices
associated with particular types of funds. Second, METI
would like the group to advise whether the GOJ should
consider specific policies (Komiya mentioned specifically tax
policies) to strengthen the role of investment funds in
supplying capital to Japanese firms.


4. (C) Komiya provided Emboffs a matrix his office prepared
listing the size, structure, and investment objectives of six
categories of funds: venture funds, private equity funds,
regional rehabilitation funds, mezzanine funds, activist
funds, and hedge funds. Emboffs reminded Komiya that a
single fund could play several of these roles, depending upon
market conditions and investment strategy. Komiya agreed,
but insisted it was important to explain to the Japanese
public the different roles funds play, although without
rigidly classifying individual funds. "We need to publicize
the good things funds do," he said, "because they were not
well understood by either the Japanese public or the media."


5. (SBU) The 13-member study group is headed by Yasuhiro
Yonezawa, professor of finance at Waseda University's School
of Graduate Studies. Of the other 12 members, eight come
from either the investment banking industry or investment
funds themselves, including the chairmen of the Japan Private
Equity Association and the Japan Venture Capital Association.
Fund managers on the panel include the CEOs of two major
Japanese private equity funds (Asuka Asset Management and
Advantage Partners) and the Japanese Managing Director of
U.S.-based Ripplewood Holdings. The remaining four members
are an attorney from the Tokyo law firm Mori, Hamada and
Mastumoto; one division director each from the Japan Business
Federation (Keidanren) and the Japan Chamber of Commerce and
Industry; and a representative of a small-business
association.


TOKYO 00000644 002 OF 002



6. (C) Komiya insisted METI is not looking for the group to
recommend new restrictions on investment funds' activities in
Japan. He described the group's final report as an objective
yardstick against which interested observers could themselves
judge the actions of funds.


7. (C) Comment: Accurate information about the role of
investment funds in global capital markets is sorely needed
in Japan. Past public statements by METI officials about the
activities of individual activist funds (refs) raise doubts
about the Ministry's own understanding of the operations of
investment funds, even though the ministry backpedalled on
those statements. Nevertheless, there are two reasons to be
sanguine about this latest study group. First, the group's
membership is heavily weighted toward fund managers and
investment professionals. That fact should preclude an
outcome leading to restrictions on funds' operations in
Japan. Second, the Financial Services Agency (FSA),not
METI, regulates Japan's capital markets and FSA is already on
record supporting policies promoting Tokyo as a global
financial center.
SCHIEFFER