Korea Post is pursuing diverse alpha-generating strategies for hedge fund investment, with a plan to allocate at least 450 billion won ($401 million) to hedge funds this year.
Hedge funds make up less than 1% of the government agency’s assets of 115 trillion won. But it is diversifying strategies and allocating more money to single hedge funds for active management, as it is pushing into alternatives.
“We will gradually increase the amount of investment in hedge funds by around 10% a year,” said Chinyong Chong, executive vice president and head of Korea Post’s savings unit.
“This year, based on solid economic fundamentals, we hold positive views on alpha strategy using stock price differences arising when interest rates rise, and credit strategy focusing on volatility and carry returns,” he said in a keynote speech for the ASK 2017 Global Summit for Hedge Fund & Multi-Asset.
The conference was hosted by the Korea Economic Daily in Seoul on May 18.
Specifically, Chong added that Korea Post’s savings arm will raise the proportion of equity long/short strategy heavily weighted towards Europe and emerging markets; equity event-driven; credit long/short based on growing bond price volatility and interest rate rises; fixed income arbitrage; and structured credit.
Credit strategies take the largest share of the savings arm’s hedge fund strategies, followed by event-driven. It has been increasing credit strategies since last year.
The postal agency’s savings unit will allocate $100 million to hedge funds in 2017, bringing its outstanding balance of hedge funds to 750 billion won by year’s end.
Its hedge fund portfolios have returned between 5.5% and 6.0% so far, according to Seong Mun Park, a senior manager of Korea Post’s savings unit.
“Diversifying alpha-generating sources is important for hedge fund management,” Park said in a panel discussion of the ASK 2017 Summit.
In comparison, its insurance arm is set to commit 200 billion won to single offshore hedge funds and 150 billion won to multi-strategy funds of hedge funds, according to SukeJun Yun, a deputy director of Korea Post’s insurance arm. For the investments, it issued RFPs earlier this month.
The insurance unit, with 50 trillion won in assets, had invested 30 billion to 50 billion won in respective hedge funds previously.
It will step up investment in alternatives by more than 1 trillion won in 2017 alone, which also includes up to $300 million mandates for global private debt fund managers.
“Hedge funds had been taken just as part of our overseas investments and played a passive role in the past,” Yun said during a separate panel discussion of the ASK 2017 Summit.
“We are making full preparations to raise the proportion of hedge funds so that they can display their characteristics as an asset class…. This year, we will see the biggest change to hedge fund (portfolios).”
As part of efforts to expand hedge fund investment, Korea Post’s insurance unit set up the alternative investment division this year, which comprises real estate/physical asset, private equity/venture capital and hedge funds.
Yun added that he is taking a close eye on political risks globally, and event-driven strategies related to US fiscal policy and fourth industrial revolution seem to work out.
Separately, for private equity/debt funds, real estate and infrastructure investment, Korea Post’s savings arm prefers blind-pool funds and project financing vehicles, with a focus on senior debt or mezzanine financing, rather than chasing equity interests, according to Chong.
<Edited by Yeonhee Kim>