BlackRock, Grosvenor picked as NPS’ fund of hedge fund managers

The National Pension Service (NPS) finally selected BlackRock Alternative Advisors and Grosvenor Capital Management on July 11 as the general partners of fund of funds that will invest a total of $1 billion in hedge funds on behalf of the NPS.

The announcement comes as the world’s No. 3 pension fund is set to initiate hedge fund investments after winning approval from its fund management committee last year. NPS also plans to allocate an additional 1.5 trillion won ($1.3 billion) to funds of hedge funds either later this year or early next year.

BlackRock and Grosvenor, once finalizing detailed conditions with the NPS, will receive up to $500 million, respectively, from the pension fund.

In a statement released on July 11, NPS described the two firms as preferred bidders of the mandates, considering that they may fail to reach a final agreement.

However, an NPS source told the Korea Economic Daily: “Chances are low for the results to be reversed.”

BlackRock and Grosvenor are among the four shortlisted bidders, along with Blackstone and UBS.

Last April the NPS introduced a benchmark to assess the performance of hedge funds as follows:

HFRI FoF Composite Index * 0.5 + [ T bill 90 days + 4.5% ] * 0.5

“Because of the recent low performance of hedge fund indices, we added ‘T Bill 90 days + 4.5%’ to the benchmark,” said the NPS source. “It also indicates that the long-term target return on hedge funds that the National Pension Service is expecting from hedge funds is T Bill 90 days + 4.5%.”

For the present, the fund management committee set a ceiling on investment in hedge funds at about 0.5% (2.5 trillion won) of the NPS’ total assets.

Going forward, the $450 billion pension fund will expand into single-strategy funds, once the ceiling on its hedge fund investment is lifted and relevant experience is built.

“This hedge fund investment is expected to contribute to the generation of stable profits by diversifying risks of our fund’s whole portfolio,” NPS CIO Myoun-wook Kang was quoted as saying in the statement.

In May, the CIO had said that alternative assets of the pension fund at home and abroad will surge by more than 10 trillion won in value by year’s end, and by 70 trillion won through 2021, in line with its asset growth. The portions of overseas and domestic alternative assets will be around 6 to 4.

 

By Chang Jae Yoo

yoocool@hankyung.com