The National Pension Service (NPS), the world’s third largest pension fund managing over 500 trillion won ($442 billion), has shortlisted four foreign hedge funds as final candidates to run its hedge fund operation on its behalf.

NPS announced on Thursday that it will pick out two hedge funds among multinational fund companies BlackRock Inc., Blackstone Group L.P., Grosvenor Capital Management, L.P. and UBS AG. After due diligence, it will choose the finalists in September, and the two selected hedge funds will be assigned to invest about $1 billion. A fund of funds is an investment vehicle allowing investment in a fund made up of other diverse funds.

Last year, NPS operation committee decided to invest in funds of hedge funds as an alternative investment as part of efforts to diversify its asset allocation and improve returns on its investments in a low interest rate environment. NPS initially planned to start to invest in hedge funds late last year, but delayed the process following the strife between former NPS CEO Choi Kwang and Hong Wan-sun then-chief investment officer at the National Pension Fund Investment Office.

In April, the fund drew up a guideline to evaluate investment performance in hedge funds and set a goal to invest 1 trillion won in funds of foreign hedge funds this year. Korea’s largest institutional investor plans to start to invest funds of foreign hedge funds and then gradually expand its investment in other hedge funds, according to an unnamed NPS official. Global consulting company Mercer is said to be advising NPS hedge fund allocations.

NPS fund management committee on Monday decided to raise the allocation of combined overseas assets, including foreign stocks, bonds and alternative assets, in its investment portfolio to 35.0 percent by 2021 from 24.3 percent as of end-2015 after it set a goal to achieve a return of 5 percent on its investment over five years starting 2017. In particular, it plans to add 24.5 percent of foreign stocks, 4.0 percent of foreign bonds and 14.0 percent of alternative assets.

By Chae Jong-won

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