Knowledge transfer was key factor of NPS’ $1 bn fund of fund GP selection – sources

  • 2016-07-15

blackrock logoThe National Pension Service (NPS) put top priority on “knowledge transfer,” along with the performance of funds when it picked BlackRock Financial Management and Grosvenor Capital Management as fund of hedge fund general partners early this week to invest a combined $1 billion, said two sources with direct knowledge on the matter.

NPS had sent request for information to 15~16 large-sized fund of fund (FoF) management firms with more than $10 billion AUM via Mercer, which advised the NPS on the GP selection, one of the sources told the Korea Economic Daily. It followed the practice of big foreign pension funds that usually invest in FoFs with a certain size of AUM or above. Mercer had shortlisted bidders for the mandates to four firms – Blackstone Alternative Asset Management, UBS Hedge Fund Solutions, BlackRock, and Grosvenor.  

GCM Grosvenor Logo - Vector“Because this is the NPS’ first investment in hedge funds and it needs to further increase investments (in hedge funds), it set the principle of selecting general partners that will be the most helpful in building internal resources,” said the first source. “Among the four shortlisted firms, it was understood that BlackRock and Grosvenor scored the highest in that aspect.”

As to the reason that the two firms with relatively smaller AUM than the other two on the shortlist were chosen, the other source said: “It is because the smaller the management firm, the more information they tend to share with LPs.” According to the Institutional Investors’ 2016 league table of fund of hedge funds (http://www.institutionalinvestorsalpha.com/profile/3446683/5583/Fund-of-Funds-50-Profiles.html), Blackstone and UBS ranked first and second respectively, based on AUM. Grosvenor and BlackRock came fifth and eighth.

The second source added: “The swing factors of the results seemed to be how much information (the NPS) can secure which each single fund manager is reluctant to share, how much database and information they have on each single fund and how much they are willing to share them with the NPS, and how much negotiating power they have to get fee discounts.”

NPS also plans to allocate an additional 1.5 trillion won ($1.3 billion) to funds of hedge funds either later this year or early next year, said NPS CIO Myoun-Wook Kang in an interview with the Korea Economic Daily in May.

By Chang Jae Yoo

koreaninvestors@hankyung.com

<Edited by Yeonhee Kim>