Asset AllocationAugust 9, 2013

Real Estate Outshines Other Assets for Norway SWF

<em>Hard assets were the winning ticket in the second quarter—and Norway has already begun to buy more.</em>

Reported by Featured Author

(August 9, 2013) — The world’s largest investor’s expansion into real estate has already begun to pay off with the asset class outperforming all others in the giant portfolio in the second quarter of the year.

Norges Bank Investment Management (NBIM) reported that the real estate segment of the Norway Pension Fund-Global had made a 3.9% return in the second three months of the year.

This was broken down into a 1.1% return from rental income, 1.2% in rising values, and the rest was due to currency movements.

In contrast, the fund’s equity portfolio made just 0.89% and its fixed income holdings—which included a stake to support the European Financial Stability Facility—lost 1.4%.

The fund also reached NOK$4.39 trillion, equivalent to around $751 billion by the end of June after an overall 0.1% investment gain over the quarter.

NBIM and the fund’s governors announced in 2010 that it would push further into real estate, citing an eventual 5% stake in the asset class. At the end of June it had just 0.9% of that quota fulfilled despite delving deep into international property markets. Since that time, however, it has already revealed plans to buy more.

The fund already owns a 25% stake of London’s prestigious Regent Street; in February it announced a joint venture with US real estate giant TIAA-CREF to invest in North American property; and just this month, European regulators cleared the way for the fund to take a 50% stake in a Parisian property vehicle owned by insurer Generali.

That the largest investor in the world has come relatively late to the property investing party may seem strange to some, but NBIM has had obstacles to overcome.

“The fund is completely transparent,” Elroy Dimson, chair of the fund’s investment strategy committee, told aiCIO. “Norwegians believe in avoiding any kind of opacity—this is why it took a long time to get into real estate as it is hard to put a definite value on it and the ultimate owners of the fund don’t want to feel like they have overpaid for something.”

Elsewhere in the second quarter report, NBIM said it was further adding to its ethical oversight and engagement with companies in which it owns stakes. It announced the creation of an advisory board, which is to include Professor John Kay, author of a review into the long-term stability of UK equity markets, Peter Montagnon, formerly of the Association of British Insurers, and Tony Watson former chief of Hermes Investment Management, according to the Financial Times.