With an investment strategy centred on Nikkei options and other derivatives, AIJ had boasted to prospective clients late last year that the cumulative returns since 2002 of a flagship Cayman-based fund had reached 245 per cent.
Some funds allocated more than 30 per cent of their assets with AIJ, attracted by the convincing sales pitch of president Kazuhiko Asakawa, whose status as a former branch manager at Nomura Securities lent him credibility.
"Many sales people got in contact with us to offer us new products. But I have to admit that Asakawa's explanation simply stood out," said one pension manager who invested in the flagship AIM Millennium fund.
Among steps being weighed to prevent another AIJ-type scandal, the health ministry is looking at limiting the percentage of a pension fund's assets invested with any one adviser, while the financial regulator is considering reclassifying pension funds as non-professional investors to give them greater protection under the law.
Okubo wants to introduce a Japanese version of the U.S. Employee Retirement Income Security Act (ERISA) to clarify the fiduciary responsibilities of all parties involved in pension management. In Japan, where many pension funds are run by financial novices, this accountability is unclear.
This issue is at the heart of a 26 billion yen ($312 million) lawsuit brought by a pension cooperative of gasoline stand owners on the southern island of Kyushu against Resona Trust & Banking Co in 2010.
The Kyushu pension claims Resona breached its fiduciary duty in steering most of its assets into highly leveraged property funds without properly explaining the risks. The property tumbled in value after the financial crisis in 2008, triggering massive losses.
A spokesman for Resona said the bank would not comment on an ongoing case.