On October 12, 2012, in response to the recent AIJ scandal, the Financial Services Agency of Japan (the “Japanese FSA”) published a draft amendment to certain rules (“Draft Rules”) intended to revamp the regulation and supervision of discretionary advisory businesses, particularly with respect to employees’ pension fund (kosei nenkin kikin) clients. The Draft Rules effectively impose an audit requirement on funds into which investment managers invest client assets, and require the investment manager to establish processes for independent third party verification of fund NAV, except when clients are specified investors (tokutei toshika). The Draft Rules also expand disclosure obligations for discretionary investment managers and the scope of supervision by the Japanese FSA. The Draft Rules were open to public comments until November 12, 2012.

1. AIJ INCIDENT -

AIJ Investment Advisors Co., Ltd. (“AIJ”) was a Tokyo-based alternative investment manager that managed primarily Japanese pension fund assets. In January 2012, an investigation by the Securities and Exchange Surveillance Commission revealed that AIJ had long falsified its performance and that, in fact, it had been operating a fraudulent Ponzi scheme, whereby the majority of its clients’ assets, in an amount of approximately JPY 200 billion (USD 2.5 billion), had disappeared.