Hedge funds-of-funds firms are opening offices in Seoul this year as Korea's National Pension Service — the country's biggest, fastest growing pool of institutional capital — moves ahead with plans to make its first allocations to those investment vehicles.
In May, SkyBridge Capital LLC, a New York-based hedge funds-of-funds firm, announced the opening of its Seoul office.
Meanwhile, executives at Irvine, Calif.-based Pacific Alternative Asset Management Co. LLC and Chicago-based Grosvenor Capital Management LP say their firms will open offices in Seoul before the year ends.
The prospect of major pools of capital in Korea coming relatively late to the hedge fund party could make the country something of an oasis for hedge funds-of-funds firms suffering as more experienced asset owners, in the U.S. and other developed markets, increasingly opt to invest directly rather than pay an extra layer of fees to have those firms vet and select underlying managers for them.
Being “somewhat late to the game” has left Korea positioned to be the “next growth market” for hedge funds-of-funds firms, said Andrew Shin, a Seoul-based director and head of investment services, Korea, with investment consulting firm Towers Watson & Co., in an e-mail.
Countries such as China might offer superior long-term prospects, but when it comes to demand for funds of funds now, Korea looks set to be “the next market to move,” agreed Scott Collison, Singapore-based head of alternatives, Asia, with Franklin Templeton InvesTempleton Investments.
Regulatory moves over the past three or four years that opened the way for the development of a domestic hedge fund market in Korea and helped local asset owners gain more familiarity and comfort with those investment vehicles have set the stage for such near-term opportunities, said Mr. Collison.
In a Sept. 17 interview in Singapore, Choi Kwang, the chairman and CEO of the Jeonju-based pension fund that had 496.2 trillion won ($439.3 billion) as of June 30, reiterated NPS' plans to make its first hedge fund allocations later this year to fund-of-funds vehicles.
Last month, an NPS spokesman confirmed that initial allocations could amount to half a percent of the portfolio — a proverbial toe in the water but still more than $2 billion.
An executive with one foreign alternatives firm in Hong Kong, who declined to be named, said Mercer is advising NPS on those allocations.
Meanwhile, the executive noted NPS officials have made it clear they prefer that firms awarded hedge fund-of-funds mandates have a local presence.
Asked if the NPS will favor funds-of-funds firms with offices in Seoul, a spokesman for the fund said NPS hasn't made final decisions yet regarding selection criteria.
Franklin Templeton's Mr. Collison said that would be consistent with what his team has heard from institutional investors in Korea. “A local presence is important across Asia, but probably more so in Korea,” Templeton's Mr. Collison said that would be consistent with what his team has heard from institutional investors in Korea. “A local presence is important across Asia, but probably more so in Korea,” he said.
Towers Watson's Mr. Shin agreed, calling NPS' move into hedge funds “a big catalyst” for funds-of-funds firms to open offices in Korea.
On that score, Mr. Collison noted that Franklin Templeton's footprint in Korea has supported the efforts there of K2 Advisors, the funds-of-funds firm Franklin Templeton acquired three yeaTempleton's footprint in Korea has supported the efforts there of K2 Advisors, the funds-of-funds firm Franklin Templeton acquired three yeaTempleton acquired three years ago.
Having people on the ground “changes the game considerably,” he said. He declined to provide details on K2's net inflows in the country.