Private equity plays a pivotal role in supporting these activities. The Japanese government acknowledges its role as a valuable resource for reviving the economy. Since the early 2000s, it has actively promoted the use of an Investment Business Limited Partnership (“IBLP”), considered equivalent to the Limited Partnership (“LP”) structure in English laws and commonly used for private equity funds. Moreover, the government acknowledges the significance of ensuring financial stability for private equity firms, which can be achieved by diversifying investments to include non-Japanese deals. Under the initiative of the Ministry of Economy, Trade and Industry, efforts are underway to make relevant laws more favorable to private equity firms. This includes, among other measures, relaxing restrictions on investments.
On February 16 2024, the cabinet passed a resolution affirming the submission of a proposal to amend a group of laws originally enacted individually but sharing a common objective of furthering Japan’s competitiveness in the global economy. Among the proposals submitted to the current session #213 of the Diet is an amendment to the Law concerning an IBLP or “投資事業有限責任組合“. The key provision of the proposed amendment is to eliminate the threshold applicable to non-Japanese investment. Currently, IBLP’s foreign investment is limited to less than 50% of the committed capital. The removal of such a threshold could broaden the eligible investments, making IBLP an attractive intermediary vehicle for both onshore and offshore LPs. Another provision included in the proposal is to allow crypto assets to qualify for IBLP’s investment.
Certainly, if enacted, the proposal would be a significant win for local GPs, making their fundraising easier. The implication not well acknowledged locally, could be far-reaching and more significant from a global perspective. The IBLP was modelled after LPS in the English legal regime, with GPs and LPs structured in a similar manner. It was established under the government’s initiative to promote startup businesses through venture capital. Ideally, the capital raised through IBLP should be invested for local businesses.
The relaxation of investment restrictions and the welcoming of global investors through IBLP may enhance Japan’s attractiveness as a preferred domicile for global capital flows – coincidentally aligning with one of the ambitious objectives within the government’s “bold” strategic plan. Whether the proposed amendment, if passed by the Diet and enacted, would serve as the catalyst for the government’s vision of creating a financial hub akin to Luxembourg, remains to be seen.
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