SEOUL (Reuters) - South Korea's National Pension Service (NPS), the world's third-largest pension fund, said it had chosen a BlackRock Inc unit and Grosvenor Capital Management to manage investments in funds of hedge funds in 2016.

NPS, which plans to begin investing in hedge funds this year, plans to entrust BlackRock Financial Management and Grosvenor with up to $500 million each, the pension fund's investment management office said in a statement.

"The upcoming hedge fund investment is expected to contribute to the generation of stable profits by diversifying risk for the fund's entire portfolio," NPS Chief Investment Officer Kang Myoun-wook said in the statement.

The NPS had 512 trillion won ($415 billion) in assets under management as of December.

(Reporting by Joyce Lee; Editing by Edwina Gibbs)