26 February 2012

Tokyo Based Hedge Fund AIJ May Have Lost/Stolen All Customer Pension Fund Money

Some of my friends in Japan are keeping an eye on this one for me, and I thank them for their help. I never learned to read Japanese beyond memorizing subway stations and street signs and the like, in addition to the usual polite conversational ability which has badly faded with the years.

The problem I have is finding good articles in English. The Japanese Shimbuns are also notoriously circumspect and polite, even when it comes to institutional fraud and the loss of pensioners money.

While they keep talking about 'lost money' and 'hiding losses' it looks more like embezzlement on the surface for at least part of the funds. It appears that virtually all the customer money has 'vanished.'

It will be interesting to see which European bank received the customer money once it hit Hong Kong via the Cayman Islands. It is not a good sign for customers that a European or American bank was involved. That smells more like theft than loss.

The Asahi Shimbun
AIJ moved huge sums to Cayman Islands, Hong Kong
February 25, 2012

AIJ Investment Advisors Co. transferred huge sums in corporate pension assets it manages to a fund in the Cayman Islands and then moved the money to the Hong Kong account of a major European bank, sources said.

The Securities and Exchange Surveillance Commission has not been able to trace where the money went after reaching Hong Kong.

The sources said the SESC was investigating the motive for transferring the funds overseas, including the possibility that the money may have been misappropriated.

It turns out that several of the companies and organizations that entrusted assets in pension funds to AIJ may lose up to half of what had been set aside to make pension payments.

In the worst-case scenario, some of the corporate pension funds may have to be dissolved because of the loss of the assets. In other cases, some individuals who are members of the corporate pension funds could see part of their pension benefits reduced.

The Financial Services Agency ordered AIJ on Feb. 24 to suspend business operations for one month. The company had collected about 210 billion yen ($2.6 billion) from about 120 corporate pension funds.

However, AIJ officials told investigators with the SESC that the company was now only managing an investment portfolio worth about 20 billion yen, meaning that about 90 percent of the assets deposited by the corporate pension funds are wiped out.

The FSA also instructed AIJ to explain to corporate clients what went wrong. The agency will begin an investigation from Feb. 27 of all 260 or so investment advisory companies to search for possible problems in their pension fund management practices.

Neither the FSA nor the Ministry of Health, Labor and Welfare have disclosed the names of the 120 or so corporate pension funds that placed their assets with AIJ...

AIJ officials have not divulged to the SESC how the assets were lost. The assets may have been lost due to bad investment decisions by AIJ or company officials may have diverted the money for their own use. AIJ officials apparently also made false statements to their corporate clients about the gains earned for the pension funds.

Investigators will look into where the assets flowed as well as the extent of the false statements made to determine if criminal charges should be filed against AIJ and its officials.

AIJ Suspension Undermines Japan Pensions Hedge Fund Appetite
By Tomoko Yamazaki and Komaki Ito
February 26, 2012, 11:10 AM EST

Feb. 27 (Bloomberg) -- The suspension of AIJ Investment Advisors Co.’s operations amid concerns hedge funds it manages had lost pension money may undermine plans by Japan’s retirement funds to boost returns to meet demand in an aging society.

The Financial Services Agency on Feb. 24 ordered the Tokyo- based firm with 183.2 billion yen ($2.3 billion) of client money to stop business for a month as the regulator investigates “possible losses” at AIJ’s hedge funds. The FSA also will undertake a nationwide probe of 263 asset managers.

“If the funds actually suffered losses, this could potentially have a massive impact on pension plans that actually invested with them,” said Taro Ogai, who oversees consulting for pension fund investments at Towers Watson in Tokyo. “Pensions already face difficulties. At a time when they are trying to boost returns and cut risks, investing in hedge funds may become difficult for them.”

The inquiry is a setback for Japan’s pension industry that has been looking to diversify away from bonds and equities into alternatives investments, including hedge funds, to maintain steady returns and fund retiree benefits in a country with the world’s fastest-growing aging society and two decades of slumping markets...

Regulators have been investigating AIJ, which invests in futures and options of equities and bonds, since the end of January, and discovered that the company has been unable to explain to investors the current state of the way their money is being managed, according to the FSA...

AIJ’s funds have been traced from Japan to the Cayman Islands, followed by a trust bank in Bermuda and ultimately to “a major European Bank” in Hong Kong, the Asahi newspaper said Feb. 25, citing an investigation by Japan’s Securities and Exchange Surveillance Commission. AIJ kept money-flow records up to the unidentified bank in Hong Kong and no further records have been found, the newspaper said...

AIJ may have lost most of the 200 billion yen it manages for companies’ pension plans, the Nikkei newspaper reported Feb. 24, citing unidentified securities investigators...

Japan’s financial regulator is also planning to investigate trust banks that handle pension money as well as corporate pensions, the Nikkei newspaper reported over the weekend. The regulator penalized at least 35 financial institutions last year including Citigroup Inc. and UBS AG for breaching securities rules, according to its website...

AIJ, led by Kazuhiko Asakawa, was established in April 1989, and had 120 clients including pension plans with 183.2 billion yen in assets as of the end of 2010, according to a statement from the FSA. It has 12 employees. Phone calls to AIJ’s main office were answered by an automatic recording which didn’t allow messages to be recorded. Asakawa was a former employee at Nomura Holdings Inc., according to a person familiar with his employment. Keiko Sugai, a Tokyo-based spokeswoman at Nomura, declined to comment...

AIJ’s fund was ranked top among pension funds in 2008, said Fujio Nakatsuka, a spokesman at Rating & Investment Information Inc. in Tokyo. He said the rankings were based on responses from pensions and not what R&I had recommended to investors...

AIJ Investment routed pension money to Cayman Islands
Fri Feb 24, 2012 1:11pm EST

Feb 25 (Reuters) - AIJ Investment Advisors Co is believed to have channeled about 200 billion yen ($2.48 billion) of corporate pension assets in custody into private investment trusts in the Cayman Islands, making it difficult to track the missing funds, the Nikkei said.

Japan's financial regulator on Friday temporarily shut AIJ on suspicion it may have hidden losses in the $2.6 billion pension funds it managed.

The Securities and Exchange Surveillance Commission (SESC) suspects that the Tokyo-based investment advisory firm may have used the tax haven to hide information on its investments. AIJ registered three investment trusts there, the Nikkei said.

Pending the results of the SESC's investigation, the Financial Services Agency plans to rescind AIJ's registration, the business daily said.

About 90 percent of the corporate pension assets managed by AIJ have disappeared, the daily said.

AIJ, after signing discretionary investment agreements with the corporate pension funds that worked with it, had the money put into the Cayman Islands investment trusts, the daily said.

AIJ is believed to have instructed that the money, once put into the investment trusts, be managed via a British-affiliated bank in Bermuda...