Key Takeaways
- • South Korea's National Pension Service (NPS) has selected London-based consultancy Albourne Partners Ltd. as an advisor to conduct operational due diligence on hedge fund managers, according to an NPS source cited by the Korea Economic Daily on January 8.
- • The NPS, a $460 billion pension scheme, has already committed $1 billion to hedge fund-of-funds managers BlackRock Alternative Advisors and Grosvenor Capital Management, with 70% of that commitment executed.
- • The NPS plans to allocate an additional 1.5 trillion won ($1.2 billion) to hedge funds this year, under a 2015 approval to allocate up to 0.5% of total assets (about 2.75 trillion won) to the asset class.
- • Albourne, founded in London in 1994, reports 257 institutional clients that it estimates invest more than $400 billion in alternative assets.
Summary
South Korea's National Pension Service (NPS) has selected Albourne Partners Ltd., a London-based consultancy, to undertake operational due diligence on hedge funds in which the pension has invested, according to an NPS source who spoke to the Korea Economic Daily on January 8. The mandate covers BlackRock Alternative Advisors and Grosvenor Capital Management, which each won $1 billion mandates from the $460 billion pension scheme. Of the NPS's $1 billion commitment to the two managers, 70% has been executed.
According to the NPS source, Albourne was chosen through competitive bidding in December. Its review will cover the operational risks of BlackRock and Grosvenor, which were selected as funds-of-hedge-funds managers in July 2016, as well as the underlying funds those managers select in cooperation with the NPS.
The selection comes as the NPS prepares to allocate an additional 1.5 trillion won ($1.2 billion) to hedge funds this year. In 2015 the pension's top decision-making body approved allocating up to 0.5% of total assets, or about 2.75 trillion won, to hedge funds. An NPS alternative investment division source said the fund is considering renewing mandates with large fund-of-funds managers such as BlackRock and Grosvenor or introducing different selection criteria. NPS Chief Investment Officer Myoun-Wook Kang had told the Korea Economic Daily last year that the fund planned to select managers for the additional 1.5 trillion won as early as 2016.
The article describes two layers of diligence applied to hedge fund mandates. Investment due diligence reviews risk-adjusted returns, trading strategy, market correlation and risk management, with NPS Investment Management staff participating alongside fund-of-funds managers. Operational due diligence assesses the capacity and reputation of managers, as well as management, IT systems and prime brokerage arrangements, and checks whether managers follow their stated strategy given the complexity and confidentiality of hedge funds relative to mutual and private equity funds.
Albourne, established in 1994, provides portfolio advisory, strategy research, investment and operational due diligence, and risk analysis services. The firm says it has 257 institutional clients that it estimates invest more than $400 billion in alternative assets.
According to the NPS source, Albourne was chosen through competitive bidding in December. Its review will cover the operational risks of BlackRock and Grosvenor, which were selected as funds-of-hedge-funds managers in July 2016, as well as the underlying funds those managers select in cooperation with the NPS.
The selection comes as the NPS prepares to allocate an additional 1.5 trillion won ($1.2 billion) to hedge funds this year. In 2015 the pension's top decision-making body approved allocating up to 0.5% of total assets, or about 2.75 trillion won, to hedge funds. An NPS alternative investment division source said the fund is considering renewing mandates with large fund-of-funds managers such as BlackRock and Grosvenor or introducing different selection criteria. NPS Chief Investment Officer Myoun-Wook Kang had told the Korea Economic Daily last year that the fund planned to select managers for the additional 1.5 trillion won as early as 2016.
The article describes two layers of diligence applied to hedge fund mandates. Investment due diligence reviews risk-adjusted returns, trading strategy, market correlation and risk management, with NPS Investment Management staff participating alongside fund-of-funds managers. Operational due diligence assesses the capacity and reputation of managers, as well as management, IT systems and prime brokerage arrangements, and checks whether managers follow their stated strategy given the complexity and confidentiality of hedge funds relative to mutual and private equity funds.
Albourne, established in 1994, provides portfolio advisory, strategy research, investment and operational due diligence, and risk analysis services. The firm says it has 257 institutional clients that it estimates invest more than $400 billion in alternative assets.
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