Samsung plans Asia hedge fund of funds

Oct 30, 2003

Samsung ITMC will launch in January and target both domestic and international investors.

Samsung Investment Trust Management Company, Korea's largest domestic fund management company with W22 trillion ($18.7 billion) of assets, is preparing to launch an Asian strategies fund of hedge funds in January. Although initially targeting domestic investors, once the fund establishes a track record, the firm is eager to leverage its brand name to attract international investors as well, says Um Tae-jong, CIO and COO for global investments and financial products.

"We are creating a product line in alternative investments," he says. In December 2002, the firm introduced its first global fund of hedge funds, the Samsung Absolute Return Fund, which now has $120 million under management. This year it has also launched fund of funds for global fixed income, and for US equities.

Although foreign financial institutions have made overtures to Samsung ITMC to partner in launching the Asian fund of hedge funds, Um has rebuffed them. "We want to do this ourselves and build our skills," he says. "We're not interested in sharing this project."

Um ran his own hedge fund in the United States for many years before joining Samsung Fire & Marine, initially to head its international investment operation. Last year Samsung Life and Samsung Fire & Marine spun off most of their funds management into Samsung ITMC and made Um the CIO. About 50% of Samsung ITMC's assets are from the parent group, and the other half from third-party clients, including a handful of international ones investing in Korean equities.

"We're the first to create a fund of funds or a fund of hedge funds in Korea," Um says. Its first fund of funds was launched two years ago on behalf of the Ministry of Planning and Budget, which pooled assets from various government pension funds; that fund now has $3.8 billion under management.

The global fund of hedge funds is conservatively designed, so far returning 6% with 3% volatility. "It's almost like fixed income," Um explains, as this is in line with current Korean appetites for risk.

The Asian version is likely to have more volatility and deliver a higher return, mainly because there is less diversity in Asia hedge fund strategies. Whereas the global hedge fund universe has 7,000 funds to choose from of all stripes, about 60-70% of Asia strategies are long/short equities, so the fund of funds portfolio will be more concentrated.