Korea's NPS names head of hedge fund investments

The world’s fourth-largest pension fund has appointed a new section leader as it transitions away from domestic fixed income. He will select hedge funds, with some $2 billion to invest.
Korea's NPS names head of hedge fund investments

Korea’s National Pension Service (NPS) has hired its first head of hedge fund investments as part of a concerted drive to diversify its portfolio, the Korea Economic Daily reports.

The pension fund, which had $441 billion in assets as of the end of March this year, has appointed James Young to the newly-created position, effective from September 1. He will be responsible for selecting hedge funds in a fund-of-funds approach, reports say.

Young was most recently director of operations at Topor & Co. Korea (TCK), a joint venture with alternatives firm Oaktree Capital. TCK is a private investment office that provides investment solutions to families, individuals and institutions.

The world’s fourth-largest pension fund is in the process of transitioning its $430 billion portfolio away from domestic fixed income, which makes up about 55% of its assets, into international equities and bonds as well as alternatives.

NPS achieved an investment return of 5.25% last year, up from 4.13% in 2013. However, local media source Etoday has reported that NPS recorded -5.53% on its stock portfolio (domestic and international) in 2014.

NPS outsources 80% of its global equity holdings to about 50 external fund managers, with the remainder – largely passive – managed internally.

NPS is scheduled to open an office in Singapore as soon as next month, as reported. This will initially be staffed with a handful of people covering South and Southeast Asia, including India and Australia. “They [staff in Singapore] will mostly be looking for alternative investment opportunities,” a senior staff member told AsianInvestor.

NPS’ aim in diversifying into hedge funds is to achieve absolute return on investment, helping to smooth the impact of stock market volatility on its portfolio.

However, the choice of Young took the market by surprise, local media reported. “The government-owned investment firm has placed more value on the ability to construct and manage a highly effective investment system when hiring a financial specialist,” one source was quoted as saying.

Young has spent the past year-and-a-half at TCK as a director based in Seoul. Prior to that he spent more than six years at Tong Yang Asset Management, latterly as head of its international division.

He started his career as an FX trader with Sumitomo Trust in September 1990. He subsequently worked in equity derivatives at Ssangyong Securities (4 years), UBS (three years) and Calyon (11 months). He has also held global product roles at Samsung Securities and Woori Bank.

NPS announced plans in March to make its first foray into hedge funds before the end of this year after its investment committee granted approval late in April, as reported. That came after eight years studying the asset class.

NPS’ fund management committee has limited the amount it can invest in hedge funds initially to about 0.5% of its entire portfolio, which amounts to about $2 billion.

NPS began exploring hedge funds as a potential investment opportunity as early as 2007, although plans were put on hold after the global financial crisis the following year.

An adviser to NPS has previously told AsianInvestor it planned to invest into overseas funds of hedge funds before gradually expanding into single hedge funds and multi-strategy. It is expected to look at developed market strategies to begin with.

A spokesperson for NPS did not respond to AsianInvestor requests for comment by press time.

AsianInvestor is hosting a panel discussion entitled Developing Alternative Investment Capabilities at our 9th annual Korea Institutional Investment Forum, rescheduled to take place at the Westin Chosun Hotel in Seoul on September 8. To download an agenda for that event, please click here.

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