[ASK 2018 SUMMIT Panel Talks] NPS mulls investing in single hedge fund

“We expect that rising market volatility will create more alpha-generating opportunities for hedge funds.”

“We have been investing through funds of funds. Now we are internally studying investing through a single hedge fund.”

“Because of bigger market fluctuations than last year and considering that the balance point of markets is moving to real assets from financial assets, it may be time to look at macro strategies performed by humans, not by machine.”

“We make a direct visit to the head offices of 60 to 70% of underlying fund managers of FoFs together with FoF analysts. After the visit, we discuss with the analysts in detail why they selected the fund manager and kept the fund in portfolio.”

“It is very important how transparent the GP is in disclosing its investment process to investors. It will be a key consideration when we select a single hedge fund.”

“It is important to find a GP who can source a new investment by any means, has access to a niche market and invests with a different point of view.”

“We began hedge fund investment in November 2016 via a fund of funds. The initial investment amount was $1 billion. Under the current allocation limit, we can increase the size to 3 trillion won, or just under $3 billion.”

“Two people take charge of hedge fund investment. We are in the process of hiring one more employee.”

▶ KIC (Junghee Han, director & head of hedge funds):

“The market conditions are becoming favorable (to hedge funds). We will seek high alpha-generating strategy.”

“We will shift our focus towards satellite (portfolio managers) away from large established GPs.”

“Performance and risk management reflect investment philosophy. They will be key considerations when we select hedge fund managers. We give more scores to GPs who systematically manage portfolio.”

“Specifically, we are looking for emerging managers spun off from large investment firms and launched with four to five managers. We are making effort to find GPs who can take advantage of market inefficiency, despite having no track record. We are interested in relative value arbitrage strategy as market volatility increases.”

“We are looking for an investment opportunity created from non-financial risk, and seeking niche and smaller players with strength in niche markets.”

“The level of inefficiency in traditional markets may decrease significantly, but we expect to see an opportunity created from inefficiency in OTC markets.”

“We began hedge fund investment in January 2010. The portfolio worth about $4.7 billion is composed of single hedge funds and one fund of funds. We are the biggest and the most active hedge fund investor in South Korea, and the fourth largest hedge fund investor in Asia.”

“We launched a five-member hedge fund team last year to manage them as a separate asset class which supplements returns from traditional assets in the long term. The hedge fund team is managing multi-asset strategy mainly in pursuit of absolute returns.”

“Hedge fund portfolio struggled in the first half of 2017, but turned to a profit as market volatility and dispersion increased in the second half of 2017.”

“As we expect our AUM to increase, we will raise the proportion of hedge funds to 4 to 4.5% from 3.5%.”

▶ Korea Post (Uira Jung, deputy director of the savings bureau’s alternative investment division):

“We began hedge fund investment in 2011. The savings bureau will increase hedge fund assets to 1 trillion won from the current 600 billion won this year. The insurance bureau plans to increase the size to 500 billion won in the second half from 400 billion won.”

“We use both single and fund of funds strategies. Eight people are responsible for hedge fund management, including risk management employees.”

“With increased volatility in financial markets and concerns about elevated asset values, current market conditions provide a good opportunity for hedge funds to generate alpha.”
“Sector selection and differentiation became more important than before. We see opportunities arising from machine learning and cryptocurrencies and will focus on them.”

“To expand hedge fund portfolio, we will hire talented managers by region and diversify investment tools.”

“Specifically, we are considering including Asia hedge funds, or doubling the pool of single funds, considering market conditions.”

“Because of our institution’s character, we prefer a GP with stable portfolio for mid returns, rather than high return-seeking GPs. With the increase in alternative investments globally, it became difficult to secure capacity from outperforming GPs. At times, we are on a wait list to be chosen by GPs.”

“We are making effort to build long-term partnerships with global GPs. We are seeking to meet hedge funds directly in New York or abroad and proceed with investment there.”

By JiHoon Lee

lovepan@hankyung.com