Firm loses 200 billion yen in pension funds / AIJ told to halt business; other probes planned

The Yomiuri Shimbun

The Financial Services Agency on Friday ordered AIJ Investment Advisors Co. to suspend its operation for a month after the Securities and Exchange Surveillance Commission found about 200 billion yen in pension funds it managed had vanished, officials said.

The investment advisory firm, based in Chuo Ward, Tokyo, manages corporate pension funds of small and midsize firms. It had solicited customers by falsely telling them it kept proper records of pension fund management.

The suspension order was issued based on the Financial Instruments and Exchange Law.

Shozaburo Jimi, state minister for financial services, announced Friday the simultaneous launch of inspections into 263 similar investment companies to verify their financial conditions.

According to the agency and other parties, the commission launched an investigation into AIJ last month and was unable to confirm the status of about 200 billion yen, or 90 percent of pension assets it was entrusted to manage by small and midsize companies for their employee pension funds.

Almost no funds were found in AIJ's bank accounts, with AIJ sources reportedly telling the commission the company had failed to properly manage the pension funds.

The commission is now investigating what happened to the assets. It has already discovered that AIJ had solicited customers by telling them the company secured high yields, though this was not the case.

The commission decided to report the case to the agency, saying customer protection must be given the highest priority. The Financial Services Agency issued the one-month business suspension order as an emergency measure.

Speaking to reporters after a Cabinet meeting Friday, Jimi said the order was intended to protect investors since their assets had likely been damaged.

"We will do our utmost to prevent similar misdeeds by conducting simultaneous inspections of companies in the same trade," he said. "The agency also wants to work closely with the Health, Labor and Welfare Ministry, which is responsible for pension management."

According to the Japan Securities Investment Advisers Association, the management of corporate pensions was handled chiefly by banks and life insurers until 1990, when the market opened up to investment advisory firms as a deregulatory measure. AIJ was founded in 1989 with 230 million yen in capital.

The outstanding assets of corporate pensions in the nation was about 79.3 trillion yen as of March 31, 2011.

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Monitoring inadequate

Two types of investment advisory companies exist: those that give investment advice to individual and corporate investors, and those that provide investment management services by selling and purchasing financial products for investors.

Investment advisory companies are obliged to register with the Financial Services Agency.

In many cases, funds entrusted by individual investors are managed by trust banks.

However, it is believed financial authorities have difficulty in fully monitoring investments, observers said.

"[The financial authorities] can't accurately determine how investments are conducted overseas," an industry source said.

The disappearance of pension funds managed by AIJ Investment Advisors will likely have a huge impact on pension investment policies by companies entrusting their funds to investment advisory firms.

The corporate pension program is supposed to supplement the public pension program and support company employees after retirement.

However, the number of new subscribers has not been increasing because of the low birthrate, while the amount of pension payouts has been increasing following the retirement of baby boomers and other factors.

Many corporate pension programs are struggling because of low management yields after the Lehman Brothers collapse, making it increasingly difficult for corporate pension operators to make ends meet.

According to the Health, Labor and Welfare Ministry, about 2.84 million people receive pensions from employees' pension funds established in each industry by small and midsize companies.

However, the operations of many investment advisory companies are believed to be less than reputable.

Both the public and private sectors must keep a wary eye on such businesses, observers say.