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South Korea's NPS seeks bids for hedge fund risk aggregation service

By Asia Asset Management  
Oct 4, 2019

South Korea’s National Pension Service (NPS) is inviting bids from financial institutions to provide risk aggregation services for its hedge fund strategies.

Risk aggregation refers to the collection of data on a hedge fund’s position and evaluation of its risk exposure.

Companies seeking to provide the service to the NPS must have at least three years of experience, and have the capability to pursue forward-looking analysis such as projections and what-if scenarios, the pension fund says in in its request for proposal on October 1.

The selected firm will be appointed for a three-year term and given an annual budget of 453 million won (US$376,101).

Applications are open until October 14, and initial reviews and evaluations are scheduled to be carried out between October 16 and October 21.

The South Korean government gave NPS the go-ahead to invest in hedge funds in 2015. The following year, the pension awarded $1 billion for two fund-of-funds hedge fund mandates. As is NPS’s practice, the managers were not identified.

According to a Hong Kong-based fund manager, the outsourcing of the risk aggregation service is in line with the pension fund’s long-term asset allocation objective.

“As NPS previously said it aims to raise its alternative allocation to 15% in 2023 from the current [share of] around 11.5%, the pension is expected to put more effort on the diversification for its hedge fund and private equity portfolios going forward,” the manager tells Asia Asset Management, speaking on condition of anonymity.

The Korea Economic Daily reported in May that the NPS is seeking to diversify its hedge fund portfolio into a single-manager strategy. It quoted the pension fund’s Chief Investment Officer Hyo-Joon Ahn as saying that it plans to allocate as much as 2 trillion won to the strategy.

The NPS, South Korea’s biggest pension fund, and the world’s third largest, had around 574 trillion won of total assets as of March 2019.