Japan's Financial Services Agency (FSA) has urged financial institutions to exercise caution when offering overseas private asset investments to retail clients, citing concerns around liquidity, transparency and investor understanding, according to a report by Bloomberg.

The regulator is reportedly particularly concerned about products such as variable life insurance policies backed by private assets, which could expose individual investors to complex and illiquid investments. The warning follows rising redemption requests at private credit funds earlier this year, which have intensified scrutiny of liquidity arrangements and investor disclosures.

Retail demand for private markets exposure has been growing in Japan, particularly among wealthy individuals. Assets held in publicly offered investment trusts linked to private assets doubled year-on-year to JPY1.5trn as of March, according to Morningstar Inc. data.

Despite the concerns, the FSA reportedly emphasised that it does not intend to restrict the development of Japan's private markets industry. The government views household investment capital as an important source of financing for domestic businesses, although the FSA has yet to indicate whether it would approve insurance products predominantly invested in private assets.