VZCZCXRO1496
RR RUEHFK RUEHGH RUEHKSO
DE RUEHKO #1725/01 1760054
ZNR UUUUU ZZH
R 240054Z JUN 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 5334
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RUEHGH/AMCONSUL SHANGHAI 0442
RUEHIN/AIT TAIPEI 7073
RUEHGV/USMISSION GENEVA 3355
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHBS/USEU BRUSSELS
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UNCLAS SECTION 01 OF 02 TOKYO 001725 
 
SIPDIS 
 
DEPT FOR EAP 
DEPT ALSO FOR EEB/IFD: KAMBARA AND YAJNIK 
DEPT PASS USTR FOR CUTLER AND BEEMAN 
NSC FOR TONG 
USDOC FOR 4410/ITA/MAC/OJ 
JUSTICE FOR ANTITRUST DIVISION - CHEMTOB 
TREASURY FOR IA/CARNES AND POGGI 
GENEVA FOR USTR 
 
E.O. 12958: DECL: N/A 
TAGS: EINV ECON OECD PGOV JA
SUBJECT: METI STUDY GROUP EXAMINES ROLE OF INVESTMENT FUNDS 
 
 
¶1.  SUMMARY: A Ministry of Economy, Trade, and Industry (METI) study 
group June 16 released a report that describes the role of private 
investment funds in Japan's financial markets.  The report notes 
investment funds can promote economic growth and contribute to 
stronger corporate performance by acting as major suppliers of risk 
capital, by encouraging greater transparency in corporate 
management, and by contributing to an efficient reallocation of 
human and management resources.  The report urges a strengthened 
dialogue between investment funds and the managements of listed 
companies to improve public understanding of the funds' activities. 
End Summary. 
 
¶2.  The Study Group on Investment Funds, established in February 
2008 by METI's Industrial Finance Division, released a report June 
16 entitled "Aiming at Funds That Contribute to Industrial 
Development and Economic Growth."  The stated purpose of the report 
is to counteract what METI considers widespread misunderstanding 
among the Japanese public of the function of investment funds in 
global capital markets.  The report examines the various types of 
private investment funds, with a view to improving public 
understanding of their role in the nation's financial system.  The 
report does not list funds by name nor does it rate different types 
of funds as "good" or "bad." 
 
¶3.  The study group, under the chairmanship of Waseda University 
Professor of Finance Yasuhiro Yonezawa, includes an M&A lawyer, a 
senior accountant, two academics, an investment banker, the chairman 
of the Japan Private Equity Association, several senior managers of 
Japanese and foreign investment funds, and senior officials of the 
Japan Business Federation (Nippon Keidanren) and the Japan Chamber 
of Commerce and Industry. 
 
Most Funds Make a Positive Contribution to Japan 
--------------------------------------------- --- 
 
¶4.  The report identifies five broad categories of investment funds 
-- venture funds, buyout funds, hedge funds, activist funds, and "a 
new type of fund that invests in listed shares (including management 
assistance funds, etc.)."  The study finds investment funds 
generally fulfill a positive function by supplying equity capital to 
support corporate growth at all stages of the corporate lifecycle, 
from start-ups to long-established listed firms.  Funds, the METI 
report states, also contribute to transparency of corporate 
management, reallocate human resources, and provide strategic 
management advice. 
 
¶5.  The report acknowledges a lack of understanding among the 
general public about the different categories of investment funds. 
Nevertheless, the report continues, it is relatively easy to prove 
venture funds, buyout funds, hedge funds and funds that invest in 
listed shares all contribute to Japan's economic growth and a 
stronger corporate sector by providing liquidity to the equity 
market and stimulating improvements in corporate value as reflected 
in share price.  The report is less definitive on the role of 
"activist funds", noting that, based on available data, it is 
uncertain whether these funds improve corporate value.  The report 
emphasizes the need for continued study on the impact of the 
activities of "activist funds" on industry's development and 
economic growth. 
 
Hostile Takeovers Not Always Bad 
-------------------------------- 
 
¶6.  On the issue of hostile takeovers, the report emphasizes 
investment funds have no "a priori relationship" with hostile 
takeovers since operating companies also conduct hostile takeovers 
against other firms.  It notes that among the five categories of 
funds the group examined, only activist funds have, so far, 
 
TOKYO 00001725  002 OF 002 
 
 
attempted hostile takeovers in Japan.  The report notes further, 
contrary to the negative image of the hostile takeover, such moves 
can enforce discipline in management.  It is difficult, therefore, 
to make a sweeping judgement about whether the impact of hostile 
takeovers on Japanese companies is always negative. 
 
¶7.  The report also identifies several challenges that need to be 
solved for investment funds to fulfill their appropriate functions. 
Such challenges include: lack of accurate understanding of 
investment funds; lack of a consistent dialogue between companies 
and investment funds; ensuring the social responsibility of 
investment funds as shareholders; lack of coordination among 
investment funds; concerns over the undersupply of risk money to 
investment funds; and development, use and accumulation of human 
resources for investment funds. 
 
Investment Funds Play an "Indispensable" Role 
--------------------------------------------- 
 
¶8.  The report concludes investment funds will likely play an 
indispensable role in the future in underpinning industrial 
advances, and "creating a new framework for economic society through 
the process of sophistication and diversification of their 
functions."  The latent strengths of investment funds have not yet 
been demonstrated fully in Japan, the report observes, since 
Japanese industries still lack an accurate understanding of the 
functions and potential benefits of investment funds.  The report 
concludes by hoping its findings will stimulate further review and 
discussion, contribute to better understanding of the significance 
and functions of investment funds, and advance the dialogue between 
business and investment funds. 
 
SCHIEFFER