Following Preqin’s previous coverage in November 2012, the South Korean investor landscape continued its development as domestic investors with capital to allocate continued looking towards alternative assets such as hedge funds in search for higher yield.
The growth in investor interest is headlined by the issuance of a new RFP by the insurance arm of Korea Post, Korea Post – EverRich Insurance Services, to invest in the asset class in July 2013. This mandate was a follow up on its previous RFP in November 2012, and is open to both domestic and global hedge fund managers that it is not currently invested with. It will only invest in fund of hedge funds vehicles adopting a multi-strategy approach run by experienced managers with at least $2bn in total assets and five years of hedge fund management history. In addition, it will only commit to vehicles with at least $50mn in fund size and minimum track record of five years.
The RFP highlighted one of the concerns that stymied the development of the local hedge fund industry. Although regulations governing the industry had been gradually loosened since 2011, local hedge fund managers still need to build up a track record before being able to tap capital from the country’s still relatively conservative investors. Preqin’s Hedge Fund Investor Profiles shows that South Korean investors generally have higher requirements with regards to track record and firm AUM for its hedge fund investments as compared to its global peers. Investors from South Korea generally target funds with an average minimum track record of just over four years and a minimum firm AUM of about $842mn, as compared to their global peers with a minimum track record of about three years and firm AUM of $460mn. Only 9% of the investor pool will provide seed capital to funds and 18% of it will invest in emerging managers, as compared to the global pool of 16% and 38% respectively.
This bodes well for foreign fund managers, who can take advantage of the gap in the marketplace to tap capital from South Korean investors. US-based SkyBridge Capital led the way earlier in July by inking a strategic partnership with Woori Investment & Securities, a leading securities firm in South Korea, to help SkyBridge Capital to distribute its offerings, allowing the fund of hedge funds manager to gain access to investor capital from the country.
However, in the longer term, there is still potential for South Korean fund managers to be able to draw upon this untapped pool of capital. Over 68% of the investors in South Korea expressed an interest in investing within Asia, and although a smaller percentage of investors from the country are willing to seed funds or invest in emerging managers as compared to their global peers, they are more willing to consider these opportunities on a case by case basis. Eighteen percent of these investors will consider seeding funds as compared to just 8% for their global peers, and 18% of them will consider emerging managers as compared to about 16% for their global peers. This indicates that despite lingering regulatory concerns and a relative short track record, opportunities still exist for budding fund managers within South Korea to put up a compelling case to convince investors from within the country to allocate capital to them.