TOKYO (HedgeWorld.com)–Hedge fund interest in Japanese markets continues to increase, as does that of local regulators who want to know exactly what impact hedge funds are having on the investment landscape.

The Financial Services Agency of Japan has outlined its intent to investigate hedge funds over the course of this year as part of a larger financial services reform package.

According to documents posted on the agency’s website, officials will contemplate an appropriate legal framework to block risk across sectors and ensure soundness, while taking international considerations into account. It’s not known whether specific regulation will result from the investigation.

A joint study group consists of the FSA, the Bank of Japan and the Ministry of Finance. Officials plan to review the current state of affairs and interview various parties involved in hedge funds. The group will then consider possible measures, officials said in a planning document.

Asian hedge fund investors have sprung up as of late as a prime target group for hedge fund firms outside of Japan. Japanese hedge fund strategies also have performed well. In 2004, Japanese long/short equity strategies were up 10.9%, according to the Bank of Bermuda AsiaHedge Composite index.

Within Japan, though, hedge funds businesses are beginning to take shape, and a chapter of the Alternative Investment Management Association is becoming active. In the past month, the FSA granted a securities sales agency license to Teneo Partners Ltd., a Cayman Islands company that helps sell products such as hedge funds to Japanese institutional investors .

SBarreto@HedgeWorld.com

Contact Bob Keane with questions or comments at: bkeane@investmentadvisor.com.