Japan Said to Weigh Extending AIJ Suspension as Probe Widens

The AIJ Investment Advisors Co. Headquarters
Japan’s securities watchdog may extend a one-month suspension of AIJ Investment Advisors Co. as investigations into the asset manager expand to Hong Kong, two government officials with knowledge of the matter said. Photographer: Haruyoshi Yamaguchi/Bloomberg

Japan’s securities watchdog may extend a one-month suspension of AIJ Investment Advisors Co. as investigations into the asset manager expand to Hong Kong, two government officials with knowledge of the matter said.

The Financial Services Agency is considering prolonging the business stoppage by at least 30 days as the March 23 deadline approaches, the officials said on condition of anonymity because the discussions are private. Japanese authorities called on their Hong Kong counterparts to help find out what happened to the 185.3 billion yen ($2.3 billion) of pension assets managed by AIJ and determine any wrongdoing, one of the officials said.

AIJ has failed to account for most of the money, prompting the regulator to embark on its biggest investigation of the nation’s fund managers. Parliament is seeking to question AIJ President Kazuhiko Asakawa next week as the case raises doubts over the safety of pensions in a country where more than a fifth of the population is over 65.

The AIJ case highlights the need for Japanese regulators “to consider hiring specialists who can trace the flow of investments that are channeled through overseas funds,” said Katsuyuki Tokushima, head of pension research at NLI Research Institute in Tokyo. “It’s time consuming to uncover money flows through offshore locations like the Cayman Islands with fund administrators based in a different location.”

Assets Dwindled

Tokyo-based AIJ told regulators that its assets under management have dwindled to about 24 billion yen, including 4 billion yen in cash and deposits, one of the officials said. Phone calls to AIJ reached an automated recording that didn’t take messages.

The lower house of parliament will ask Asakawa to appear before its financial committee on March 14, Shunichi Yamaguchi, an opposition Liberal Democratic Party lawmaker, said in Tokyo today. Asakawa’s current whereabouts are unknown, Yamaguchi said.

Employees of AIJ have been cooperating with the inspection performed by the Securities and Exchange Surveillance Commission, the official said, while they have failed to fully explain issues such as the whereabouts of the investments under management. The person didn’t name the AIJ staff it spoke with.

Hong Kong Link

Japanese regulators want authorities in Hong Kong to help trace the movement of money managed by AIJ that went to the Cayman Islands, the official said. A financial institution with operations in Hong Kong may be able to provide information to local authorities on the flow of that cash, the person said, without naming the institution.

Jonathan Li, a spokesman for Hong Kong’s Securities and Futures Commission, declined to comment on whether the regulator is assisting with the investigation.

At least one of AIJ’s funds, AIM Millennium, was registered in the Cayman Islands, according to presentation materials provided to a pension fund that were obtained by Bloomberg News last week.

The FSA on Feb. 24 ordered AIJ to stop business for a month while the SESC, the regulator’s investigative arm, inspects the firm for possible losses. The firm’s clients included pension funds of unions representing workers ranging from taxi drivers to medical practitioners. Advantest Corp., a maker of memory chip testers, and Yaskawa Electric Corp., an industrial robot maker, are among corporate pension plans that put money with AIJ.

Affects 880,000

AIJ managed 185.3 billion yen of assets with 84 pension funds as of March 2011, according to labor ministry data. About 880,000 people may have been affected, ministry figures show.

One client, Human Holdings Co., plans to seek compensation. The school and health care provider is speaking with its lawyers to try to claim damages for any losses on the 330 million yen AIJ managed for the Tokyo-based company as of Dec. 31, Yusuke Kawashita, an executive officer, said in an interview today.

Shares of Human have declined for six straight days, losing 9.4 percent, since disclosing it was a client of AIJ on Feb. 29. Unlike most of AIJ’s Japanese customers, Human didn’t invest pension assets.

The probe spurred the FSA to ask 265 asset management firms nationwide to submit status reports on their business by March 14. The reports must contain details of a firm’s operations, contracts and amounts, and any past complaints from customers.

Based on the responses, the regulator will compile a shortlist by late March of companies that may need extra investigation, a senior FSA official told reporters last week on condition of anonymity because of the agency’s policy.

Watchdog’s Findings

AIJ hasn’t been accused of wrongdoing following its suspension. Any action against it depends on the SESC’s findings, Financial Services Minister Shozaburo Jimi said on Feb. 28.

Jimi pledged last month to consider revamping the inspection and supervision of pension asset managers, saying his agency won’t rule out any step to prevent cases like AIJ’s.

Prime Minister Yoshihiko Noda’s party has set up a panel to study stricter oversight of the fund management industry. The group met for the first time last week to consider measures including requiring external audits for privately owned asset management firms and expanding responsibilities for custodians of fund assets, said Tsutomu Okubo, one of the 10 lawmakers on the subcommittee.

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