South Korea’s National Pension Service (NPS) has selected London-based consultancy, Albourne Partners Ltd., as an advisor to undertake operational due diligence on hedge funds, including BlackRock Alternative Advisors and Grosvenor Capital Management, which had won $1 billion mandates from the pension fund, an NPS source said on Jan. 8.
The selection comes as the $460 billion pension scheme is preparing to allocate an additional 1.5 trillion won ($1.2 billion) to hedge funds this year. In 2015, it won approval from its top-decision making body of allocating up to 0.5% of its total assets, or about 2.75 trillion won, to hedge funds.
Of the NPS’ commitment of $1 billion to the two hedge fund managers BlackRock and Grosvenor, 70% has been executed.
“Last month, we selected Albourne as an outside advisor through competitive bidding to review operational risks (of hedge funds),” the NPS source told the Korea Economic Daily. “Albourne will review operational risks of BlackRock and Grosvenor which we selected as funds of hedge funds managers last July, and underlying funds which those funds will select in cooperation with us.”
Hedge funds which receive a mandate from limited partners such as the NPS undergo two types of due diligence. First, they will be subject to investment due diligence where risk-adjusted return, trading strategy, correlation to markets and risk management are reviewed in general. Working-level officials of the NPS’ Investment Management department will participate in the due diligence process, together with funds of funds managers.
Second, operational due diligence will be performed for qualitative assessment where the capacity and reputation of fund managers, and management, IT systems and prime brokerage services of the fund house concerned are reviewed. It is required to scrutinize whether hedge fund managers follow the strategy they have promised and have a capacity to do so, given their complexity and confidentiality compared with mutual funds and private equity funds.
Albourne was established in London in 1994. It provides research and advisory services ranging from portfolio advisory and strategy research to investment due diligence, operational due diligence and risk analysis. According to its website, the company has 257 institutional investors as clients which are estimated to invest more than $400 billion in alternative assets.
Regarding the NPS’ plan to select hedge fund managers for an additional investment, an NPS’ alternative investment division source said: “We are considering giving mandates to big fund of fund managers such as BlackRock and Grosvenor again, or introducing different criteria.”
NPS Chief Investment Officer Myoun-Wook Kang had told the Korea Economic Daily in an interview last year that the pension fund planned to select hedge fund managers to invest further 1.5 trillion won as early as in 2016.
By Chang Jae Yoo
<Edited by Yeonhee Kim>