About 200 billion yen ($2.6 billion) in pension funds managed by Tokyo-based AIJ Investment Advisors Co has disappeared after it was transferred to a fund in the Cayman Islands, followed by a trust bank in Bermuda and then moved to the Hong Kong account of a major European bank, Japanese media is reporting. The Securities and Exchange Surveillance Commission (SESC) has not so far been able to trace where the money went after reaching Hong Kong but the Japanese financial regulator plans to unravel the complex flow of money from the investment advisory firm and find out how the money disappeared. SESC suspects that AIJ may have used the Cayman Islands to hide information on its investments.
Pending the results of the SESC’s investigation, the Financial Services Agency plans to rescind AIJ’s registration, the local media said.
AIJ used most of the 200 billion yen to buy a private investment trust in the Cayman Islands through ITM Securities Co, a Tokyo-based company with close ties to AIJ, The Daily Yomiuri reports, quoting sources close to the company. It said the money had been entrusted to AIJ for investment by its client companies, which were mainly small and midsize companies. However, the funds were believed to have been transmitted to multiple financial institutions, including a bank in Hong Kong.
The private investment trust in the Caymans was established by a person closely associated with AIJ. A foreign trust bank in Bermuda also was believed to be involved in the funds management, the sources told the Japanese daily.
When the commission inspected AIJ last month, some accounting documents that could have detailed the investment performance of the trust in the Caymans could not be located.
Companies managing pension funds that require a stable yield usually use domestic trust banks. An AIJ official was quoted by the commission as saying, “We don’t know accurately how our investments performed overseas.”
AIJ has admitted submitting false business reports to the Finance Ministry’s Kanto Local Finance Bureau, a violation of the Financial Instruments and Exchange Law.
AIJ managed about 210 billion yen ($2.62 billion) across 123 contracts in Japan and overseas as of the end of last March, according to a filing with the Japan Securities Investment Advisers Association. The company is led by Kazuhiko Asakawa, a former employee of a securities firm.
While the FSA indicated that it was still investigating the size of the losses, Reuters said that a source familiar with the matter said the regulator believes more than half of client assets may have been lost for good.
“We believe AIJ’s assets have lost some of their value. AIJ cannot explain its asset management situation. The size and cause of the losses are now under investigation,” the FSA official said.
AIJ is registered in Japan by the FSA as a so-called discretionary investment manager, which can include fund managers that employ hedge fund strategies.
