Jun Kwang-woo, CEO of Korea’s $340 billion National Pension Service, says the timing may improve next year to consider putting hedge funds on the agenda.

In an exclusive interview with AsianInvestor conducted recently during the NPS’s 25th anniversary celebrations, Jun acknowledges the political difficulties of getting the NPS’s statutes amended to allow it to invest in hedge funds.

“We did have a plan last year to explore hedge funds and other vehicles,” Jun says. “But market sentiment has turned more cautious, due to the European debt crisis and so on. NPS is a public institution, and we must manage perceptions. Today the general perception is that hedge funds are too risky or speculative for a public pension fund.”

The fund’s internal team is considering the merits of adding hedge funds to its list of investible asset categories, but it’s been difficult getting a hearing at the Ministry of Health and Welfare, the NPS’s regulator.

Because the NPS is an arm of the ministry, it is not considered an institutional investor and operates under a separate law to, say, Korea Investment Corporation.

However, Jun says the NPS may review this. “It’s a matter of timing,” he notes. “It is possible that later this year or next year we will deliberate this internally first, to see if we should put it on the agenda.”

In general, Jun iterates the NPS’s determination to deepen its exposures to international and alternative investments. In 2011, much of the NPS’ positive performance was derived from its exposure to private equity.

This is best achieved by deepening relationships with strategic partners in the capital markets, adds Jun. “We’re not the only ones who think the same way [about investing more into alternatives],” he says.

“The buy-side’s position is not as favourable as it was before. There’s now competition among buyers, and that is affecting the price of our investment targets. That, in turn, impacts our expected rate of return. So we must leverage our information networks and strategic relationships. We must use various means to remain half a step ahead.”

A full interview with Jun along with a feature on the future of NPS is now available in AsianInvestor’s October magazine.