Head of Japan fund apologizes for pension losses

[March 27, 2012]  TOKYO (AP) -- The head of a Japanese investment company accused of losing more than $1 billion in clients' pension funds apologized Tuesday, saying he intends to repay losses that were concealed for years.

AIJ Investment Advisors President Kazuhiko Asakawa made the apology in a committee hearing at Japan's parliament. He said he ordered company financial reports to be falsified to conceal the losses.

Japan's Securities and Exchange Surveillance Commission alleges that AIJ lost 109.2 billion yen ($1.3 billion) in pension funds in derivatives trading overseen by Asakawa. Much of the money came from small pension funds which may go bankrupt due to the losses.

"I was confident that we would be able to regain the losses," Asakawa told lawmakers. "To clarify, I never intended to deceive" clients, he said.

Investigators from the SESC raided AIJ's headquarters in Tokyo last week, amid mounting worries over the scale of the losses and the apparent lax oversight of pension funds at a time when many companies fear they will be unable to meet payment obligations.

The commission says AIJ, which was set up in 2002, operated as a hedge fund, offering investment trusts packaged as the "AIM Global Fund" which invested in derivatives such as Japanese government bond options. The company's claims of hefty 10 percent to 20 percent annual returns reportedly lured 84 pension funds representing some 880,000 company employees.

Since it lost money throughout most of its existence, AIJ is suspected of inflating the value of the funds it was selling to make up for losses from earlier investments, in what amounted to a pyramid scheme.

AIJ claimed to have 209 billion yen ($2.5 billion) in net assets as of the end of March 2011, when in reality it had only 25.1 billion yen ($303.5 million) in net assets, according to the SESC.

The commission said it found only 6 billion yen ($72.5 million) in funds in AIJ's bank account.

Japan has liberalized controls on how pension funds are invested, allowing managers greater leeway to dabble in higher risk stock index and bond options.

Allegedly to evade oversight by trust banks that are supposed to administer the funds, AIJ put the funds under its management in an investment trust at a Cayman Islands-registered bank, according to documents posted on the regulator's website.

[Associated Press; By ELAINE KURTENBACH]

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