Norges Bank Remains Committed to European Bailout Fund

(March 25, 2011) — Dag Dyrdal, Chief Strategic Relations Officer at Norges Bank Investment Management (NBIM), says that the fund has played a major role in the European Financial Stability Facility (EFSF), and will remain positive toward the initiative to rescue nations from default.

Industry officials, such as the philanthropist billionaire and hedge fund legend George Soros, have expressed heightened support for a European bailout fund to guard the area from its debt crisis. “We got much less than we asked for — about 3% of the total amount of EFSF’s issue,” Dyrdal told aiCIO, noting that the fund views eurozone bonds as having less risk than single-sovereign debt. “We remain big players in fixed-income investment in Europe, and are long-term investors.”

Despite Europe’s sovereign debt crisis, Dyrdal noted that the fund is heavily diversified in sovereign bonds across Europe, and will remain committed to the asset class. “The big question is whether the overweighting of Europe in equities and fixed-income is the right one,” he said, adding that he sees opportunity in India and China, where growth has trumped that of Europe and the US. With its small allocation in Asia, the crisis in Japan has not impacted the fund greatly. “We’re quite bullish on opportunities in the Asia region, but that won’t mean short-term reallocation.”

In 2010, Norway’s Government Pension Fund Global, the world’s second-largest sovereign-wealth fund valued at $548 billion at the end of last year, started investing in real estate to improve the real return of the fund. The move reflects efforts by Norway’s government-run oil fund to increasingly invest in real estate, infrastructure and other assets that have been viewed as hedges against inflation. 

“Most investors these days have some concerns about inflation,” Dyrdal told aiCIO. “With 60% in equities and 40% in fixed-income, we still think we’ll be able to achieve our expected return even if fixed-income underperforms,” he said. While the fund is currently solely invested in public equity, fixed-income, and, more recently, real estate, Dyrdal indicated that the realistic fear of higher inflation could push the government to further diversify the fund into real estate, infrastructure, and private equity for protection of the real return.

Dyrdal added that the fund aims to continue its expansion into real estate at the expense of fixed-income, with a target of building a $25 billion real estate portfolio. “We just made our first investment in the UK, and the further real estate expansion will be gradual and conservative, with no time limit.” This year and next year, the fund will look toward investing in property in other major European markets — in the UK, France, and Germany — and will eventually look toward markets in other areas inside and outside of Europe. “Overall, allocation is decided by the Ministry of Finance, which seeks stable and long-term returns. For a fund of this size, it’s not easy to apply tactical applications.”