Norway SWF May Invest $86 Billion In Real Estate

Norway’s sovereign wealth fund is the largest in the world, and it recently claimed that Asian real estate could be a particular hot-spot for growth.

The $860 billion fund invests on behalf of the Norwegian government, which gave permission to invest 5% of the fund in property in 2010. Norwegian officials are now studying whether or not it should add more real estate to its portfolio, writes Saleha Mohsin in Bloomberg.

Norway Sovereign Wealth Fund
The Government Pension Fund Global

Asian real estate a new focus for Norwegian fund

So far the fund has bought properties in New York, Paris, London and Berlin, but it is now targeting Tokyo and Singapore.

“The vast majority of academic studies come to the conclusion that adding real estate does improve the risk-return profile of a mixed-asset portfolio,” read a discussion note based on research released on Friday. “Estimates of optimal allocations to real estate vary strongly. The median range of the suggested allocations to real estate in the 30 studies reviewed was 15 percent.”

The fund is overseen from within the Norwegian central bank by Norges Bank Investment Management, which held approximately 3% of its assets in real estate at the end of Q3. That share is set to increase as it invests around $5.8 billion each year in property, focused on 10-15 global cities.

Fund looking to end run of successive quarterly losses

According to the fund, returns on property averaged 7-9% from 2000-2013 but have declined of late. In another research note it said that it may be best to emerge in property in emerging markets.

“A considerable population growth, combined with positive wealth effects and urbanization, appears to favor emerging markets, particularly Asia,” the fund said.

In Q3 the fund suffered its first back-to-back quarterly losses in six years, losing $32 billion due to a global dip in stock prices. Its stock holdings fell 8.6% while bonds gained 0.9% and real estate 3%.

Karsten Kallevig, head of the fund’s real estate investments, told the press in March that it would be investing in “a lot” of Asian properties. However this Thursday CEO Yngve Slyngstad told the Norwegian press that the fund had become less optimistic about investing in the region. The study is ongoing as the fund attempts to find ways to bounce back from recent losses.