Suspended AIJ Lured Nagano Pension Fund With Nomura Pedigree, 7% Returns

A Japanese pension fund said it invested with AIJ Investment Advisors Co., whose business has been suspended by regulators, because it was run by a former Nomura Holdings Inc. (8604) manager and offered 7 percent returns.

“We believed in such high returns as we were assured that the business is being led by a former Nomura branch manager,” Toshiro Katsuno, a board member of Koshinetsu Printers Association Pension Fund, said in a telephone interview yesterday. “People become blind in front of such a big name.”

Katsuno said the association manages about 10 billion yen ($123 million) in pension assets for 3,000 print workers in Nagano, central Japan. It began investing with AIJ in 2005 and still has “a significant portion” of assets with the firm, he said, declining to specify how much. Kazuhiko Asakawa, president of Tokyo-based AIJ, used to work at Nomura, Japan’s biggest securities company.

The Financial Services Agency on Feb. 24 ordered AIJ, which had 185.3 billion yen of client money as of March, to stop business for a month as the regulator investigates possible losses at its hedge funds. That has led to the biggest probe in the history of Japan’s fund industry, as the FSA examines 263 asset managers nationwide.

Nikkei Options

AIJ told investors one of its funds returned 241 percent since it started in May 2002 by mainly trading Nikkei 225 options, according to a newsletter obtained by Bloomberg News.

“This is fraud and should be a criminal case,” Katsuno said. To seek information, he visited AIJ and its brokerage, ITM Securities Co., which are located in the same building in Tokyo’s Nihonbashi district, on Feb. 24 when the FSA announced the suspension. He said he was unable to meet with Asakawa.

Neither AIJ, Asakawa nor ITM have been accused of wrongdoing.

Asakawa went to Nagano in June 2010, along with ITM Securities founder Hideaki Nishimura, and made a presentation to executives of the pension fund including Katsuno to explain the performance of AIJ’s funds. The association invested in three of them, including one called AIM Millennium, Katsuno said.

Asakawa isn’t the only former Nomura employee at the fund manager. Shimpei Matsuki, chief investment officer at AIJ, was one of three ex-Nomura executives who received suspended sentences in 1999 for paying off a corporate extortionist who threatened to disrupt the brokerage’s 1995 shareholder meeting.

Left Nomura

“The AIJ persons quoted in the media reports as ex-Nomura left Nomura more than a decade ago,” Keiko Sugai, a spokeswoman for the Tokyo-based bank, said in an interview. “Nomura did not participate in the wrongdoings reported by the media.”

Calls to AIJ reached an automated recording that didn’t take messages. Asakawa couldn’t be reached for comment. Yasuo Tsuneyoshi, a manager at ITM Securities, declined to comment.

Japanese regulators will begin their nationwide probe of asset management firms tomorrow, Financial Services Minister Shozaburo Jimi said at a news conference in Tokyo today. Any action against AIJ depends on the outcome of the investigation being pursued by the Securities and Exchange Surveillance Commission, the financial watchdog under the FSA, Jimi said.

Some 539,650 subscribers to AIJ’s funds may be affected by possible losses, according to a statement by the labor ministry.

AIJ’s AIM Millennium fund returned 3.9 percent in the six months through September 2011, according to the four-page October 2011 newsletter in Japanese. That compares with an 11 percent decline in the Nikkei 225 Stock Average (NKY) and 12 percent retreat in the broader Topix Index.

“We found him to be a confident and breezy talker,” Katsuno said of Asakawa, referring to his visit to Nagano almost two years ago. “We want the regulators and authorities to investigate fully and take appropriate measures.”

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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