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[ASK 2019 SUMMIT] NPS to allocate $2 bn to single hedge funds in 2019

May 17, 2019 (Gmt+09:00)

The National Pension Service (NPS) will allocate $2 billion to single-manager hedge funds this year in its first direct investment in hedge funds, while Korea Investment Corporation (KIC) plans to increase allocation to hedge funds again.

“We will commit 2 trillion won ($2 billion) to hedge funds and will select managers soon,” Hyo-Joon Ahn, NPS’ chief investment officer, said on May 15 on the sidelines of the ASK 2019 Private Debt & Private Equity Summit hosted by the Korea Economic Daily in Seoul.

NPS’ hedge fund portfolio comprises of only two funds of funds to which it committed a total of $1 billion in 2016.

Now the world’s No.3 pension scheme is planning to invest 2 trillion won into single-manager hedge funds, just after the South Korean government broadened the investment scope for the $570 billion pension fund.

Given that NPS is allowed to allocate up to 0.5% of total assets to hedge funds, it is able to invest 3 trillion won in hedge funds in aggregate.

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Separately, KIC will boost hedge fund investment again, zooming in on new strategies less overlapped with equities-based traditional styles and fund managers trying to introduce a new fee structure, its CIO Shinwoo Kang said

Currently, hedge funds make up 3.5% of KIC’s investment portfolio, worth $5 billion in net asset value. They had made substantial contributions to KIC’s investment returns, returning mid-5% in the past decade.

“We will gradually increase allocation to hedge funds which we had refrained from over the past three years,” Kang said in a keynote speech for the ASK 2019 Hedge Fund & Multi Asset Summit on May 16.


KIC had shied away from hedge funds because of their underperformance in the past few years and high fees which Kang said undermined their role as volatility dampener and alpha generator.

The hedge fund industry may continue to struggle with expansionary monetary policy amid low inflation expectations and position overlaps with passive style and quant investing. An extended period of bullish stock and bond markets also has narrowed their opportunity set.

But Kang noted that it is still worth investing in hedge funds for KIC and other large institutional investors which remain overweight towards equities and need to diversify.

“They are too attractive to discard because of their role of reducing portfolio volatility as a whole for large institutional investors,” Kang said.

“It is important to take note of strategies less overlapped with other positions, including alternative risk premia and FI arbitrage strategies … Further, considering a strong negative correlation between fees and investment returns, we need to take a forward-looking approach to hedge fund managers which are trying to introduce a new fee structure.”

But for equities-based traditional strategies heavily overlapped with other positions, he advised a selective approach and applying strict standards.

By Chang Jae Yoo

(Updated on May 21, 2019 to modify the dollar terms of the planned allocation amount to $2 billion and to add more comments from KIC chief investment officer)

Yeonhee Kim edited this article

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