Key Takeaways
- • South Korea's National Pension Service (NPS), the world's third-largest pension fund, selected BlackRock Financial Management and Grosvenor Capital Management to jointly manage its initial hedge fund allocations in 2016.
- • NPS committed up to $500 million each to BlackRock and Grosvenor for funds-of-hedge-funds management, representing the pension fund's formal entry into hedge fund investing.
- • The allocation reflects NPS's strategic portfolio diversification initiative, with the fund targeting an increase in overseas investment exposure from 23.5% to over 30% of total assets.
- • The dual-manager structure with two established alternative asset managers signals NPS's risk management approach for a new asset class exposure in its investment portfolio.
Summary
South Korea's National Pension Service announced in July 2016 that it had selected BlackRock Financial Management and Grosvenor Capital Management as managers for its hedge fund investments, marking the pension fund's inaugural entry into the alternative asset class. As the world's third-largest pension fund, NPS's decision to allocate capital to hedge funds underscores growing institutional acceptance of alternatives among major global pension funds.
Each manager received a mandate to manage up to $500 million in funds-of-hedge-funds investments on behalf of NPS. The funds-of-hedge-funds structure—rather than direct hedge fund allocations—provides an additional layer of diversification and operational oversight, a common approach for institutional investors new to hedge fund exposure. According to NPS's investment management office, the fund planned to begin deploying capital into these mandates in 2016.
The hedge fund allocation reflects NPS's broader portfolio internationalization strategy. As of October 2015, NPS held 23.5% of its assets in overseas investments, with management indicating plans to increase this proportion to over 30%. By diversifying geographically and expanding into alternative investment vehicles, NPS aims to enhance returns and reduce concentration risk across its portfolio.
The selection of two established global asset managers—BlackRock, a leading index and active manager, and Grosvenor, a specialized alternatives firm—suggests NPS applied rigorous due diligence in selecting partners for a new asset class. This dual-manager approach distributes operational and performance risk while providing comparative benchmarking across hedge fund exposures. The decision positions NPS alongside other major institutional investors that have substantially increased allocations to hedge funds in recent years.
Each manager received a mandate to manage up to $500 million in funds-of-hedge-funds investments on behalf of NPS. The funds-of-hedge-funds structure—rather than direct hedge fund allocations—provides an additional layer of diversification and operational oversight, a common approach for institutional investors new to hedge fund exposure. According to NPS's investment management office, the fund planned to begin deploying capital into these mandates in 2016.
The hedge fund allocation reflects NPS's broader portfolio internationalization strategy. As of October 2015, NPS held 23.5% of its assets in overseas investments, with management indicating plans to increase this proportion to over 30%. By diversifying geographically and expanding into alternative investment vehicles, NPS aims to enhance returns and reduce concentration risk across its portfolio.
The selection of two established global asset managers—BlackRock, a leading index and active manager, and Grosvenor, a specialized alternatives firm—suggests NPS applied rigorous due diligence in selecting partners for a new asset class. This dual-manager approach distributes operational and performance risk while providing comparative benchmarking across hedge fund exposures. The decision positions NPS alongside other major institutional investors that have substantially increased allocations to hedge funds in recent years.
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