Japan's financial regulator will inspect Japan's 263 asset managers in the widest probe of the industry in recent years, following the disclosure by AIJ Investment Advisors that it could not account for nearly ¥200-billion ($2.5-billion U.S.) in assets it had been entrusted to manage.
The Financial Services Agency ordered AIJ, which managed pension assets of more than 100 companies, to halt operations for one month after the asset manager conceded it "could not explain to investors" what happened to their money.
"We have ordered AIJ to halt business for a month in order to safeguard investors, as it appears client assets have been adversely affected," Shozaburo Jimi, FSA minister, said on Friday.
The FSA's decision to suspend AIJ's business comes as the Securities and Exchange Surveillance Commission is still inspecting the asset manager, reflecting the regulator's degree of concern over the matter, said one FSA official. Normally, the FSA would wait for a recommendation from the SESC before issuing such an order.
AIJ, which was established in 1989 and employed 12 people, managed Y182-billion in assets for 120 clients, including companies such as Advantest, the maker of automatic test equipment, and Yaskawa Electric, which makes controller systems and robots.
The asset manager, which continued to pay dividends and claimed to be profitable, had raised suspicions among some experts because of its surprisingly firm returns.
Yaskawa said in a statement the amount managed by AIJ represented less than 2 per cent of its pension fund assets and it expected the impact of the incident on the fund to be minimal.
AIJ could not be reached for comment.
The loss of AIJ's client funds comes as Japanese pension funds have faced a difficult trading environment in the wake of the Lehman shock in 2008 and the ensuing global financial crisis.
The Government Pension Investment Fund, which manages ¥108.9-trillion in assets, made a loss of Y3.7-trillion on its investments and had a negative 3.32 per cent rate of return in the second quarter of the year to March 2012.
Japan's asset management companies were required to obtain a licence until 2007 when deregulation was introduced, allowing managers that met certain criteria to operate by simply registering with the regulator.
The FSA, which conducts irregular inspections of asset managers, said it would also review its supervising and inspection systems.