Korea Post’s insurance bureau is to make its first allocations into individual foreign hedge funds, amid widespread investor scepticism about the asset class and pressure on managers to reduce their fees.
The unit of the country’s national postal service will hand $200 million spread across 10-15 hedge fund managers from August onwards, said a source at Korea Investment Management (Kimco), which is advising Korea Post on the allocation.
Korea Post, which has W45 trillion ($39 billion) under management, invited pitches from managers on Friday. It is looking for single offshore hedge funds across five strategies: equity long/short, event-driven, credit relative-value, discretionary global macro and multi-strategy.
Applying managers must have been operating for five years and have at least $1 billion in hedge fund strategies and an individual fund size of at least $300 million. They must also have at least five years’ track record in offshore hedge funds. Each applicant can submit up to one fund.
In addition, funds must have quarterly or more frequent liquidity and allow a soft lock-up – meaning redemptions can be made with some penalty – and no more than a one-year hard lock-up. They must also calculate net asset value (NAV) at least weekly and provide bi-weekly NAV estimates with an official minimum NAV.
With respect to transparency, it will not consider applicants that do not have operational infrastructure approved by consultancy Albourne Partners.
Submissions must be made by 5pm local time on May 26. The first evaluation for selecting candidates to present will be complete by May 31, presentations will be made in June, and onsite due diligence will be conducted in July.
Meanwhile, on May 8 Korea Post’s insurance bureau invited global multi-strategy fund-of-hedge-fund (FoHF) managers to pitch for mandates.
Local fund house Mirae Asset Global Investments (MAGI) will incorporate an onshore fund in Korea in which Korea Post is the sole investor. The appointed FoHF manager will advise MAGI on investing the onshore fund’s assets in hedge strategies. MAGI will carry out functions such as trading and settlement of hedge funds in Korea and will monitor the adviser’s performance.
The applicant FoHF manager must have at least $2 billion in AUM and a fund size of at least $500 million with at least 10 years’ track record and NAV calculated on a monthly or more frequent basis.
The deadline for submissions is 5pm on May 19, and the result of the first-round assessment for selected candidates will be decided on May 24.
MAGI declined to comment on the planned mandate.
Separately, Kimco manages more than $500 million in global FoHF strategies for Korea Post’s insurance unit.
Meanwhile, this time last year Korea Post’s savings bureau, with $56.5 billion in AUM, invited RFPs from local and offshore single-strategy hedge fund managers to run fixed income arbitrage (interest rate arbitrage or credit long/short) and structured credit long/short. This was part of the institution’s strategy to build a pool of hedge fund managers on which to draw for future mandates.
Pressure on hedge funds
Korea Post’s move to build its hedge fund exposure has come at a time when the asset class has been going through a tough period, with investors unhappy about what they see as mediocre returns. The Lyxor Hedge Fund index is up just 0.52% this year, as of April 28.
Moreover, the fees that hedge funds can charge are falling sharply as investors rebel over disappointing returns, heard delegates at AsianInvestor’s Asian Investment Summit earlier this month.
About 41% of investors succeeded in reducing their hedge fund management fees in 2016 without longer lock-ups, up from 25% in 2014, according to a survey by Albourne Partners.
Richard Johnston, Hong Kong-based managing director for Asia at Albourne, said at the AIS: “Investors are waking up to reality and are being much more aggressive on fees. This trend really got going in 2016 and believe me it just gained a lot more momentum in 2017.”
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