Norwegian sovereign wealth fund to invest US$11bn in US real estate

Norway's US$660 billion sovereign wealth fund, the world's largest, plans to invest about US$11 billion as it enters the US real estate market.

The fund, mandated by the country's finance ministry to eventually put 5 per cent of assets in property, wants one-third of that, or 1.7 per cent, to be in the United States, said Yngve Slyngstad, chief executive officer of Oslo-based Norges Bank Investment Management, which oversees the pool. The fund held 0.3 per cent in real estate, 60.3 per cent in stocks and 39.4 per cent in bonds as of the end of September, according to its quarterly report.

"The US is the next real estate market to invest in," Slyngstad said in an interview in New York.

Sovereign wealth funds, or state-owned investment pools, are seeking to diversify their risk by expanding investments beyond stocks and bonds. China Investment Corp., which oversees about US $482 billion in assets, in 2010 helped refinance a Manhattan office tower co-owned by private-equity firm Carlyle Group. Norway, seeking higher returns and lower risk after record losses in 2008, gave approval in 2010 for its fund to invest as much as five per cent of its value in real estate over several years.

The fund is focusing on conservative property investments, such as large office complexes in major cities and developed malls, Slyngstad said in the interview. It has already bought commercial property in London, Paris, Frankfurt, Berlin and Sheffield in the UK, and on November 29 made its first real estate investment in Switzerland, buying a Zurich office complex from Credit Suisse Group for 1 billion Swiss francs (HK$8.4 billion).

As sovereign wealth funds become more active buyers of real estate, investors such as Blackstone Group, expect to increase sales of property holdings. New York-based Blackstone, the largest alternative-asset manager, has US $54 billion of real estate assets, including office developments, shopping centres and hotel chains such as Hilton Worldwide.

"The other trend that will be helpful for us to exit some of the larger things we own, particularly the higher-quality assets in the gateway cities, is the rise of the sovereign wealth fund," Jonathan Gray, Blackstone's global head of real estate, said last month at the Bloomberg Commercial Real Estate Conference in New York. "Sovereign wealth funds are enormous pools of capital around the world," and real estate offers higher yields than government bonds, along with a hedge against inflation.

More than 60 per cent of sovereign wealth funds invest in real estate, either directly or indirectly through other funds, according to Preqin, the London-based research company. Larger government pools are more likely to make property investments, Preqin said in an April research note, with 83 per cent of those managing at least US$250 billion being active in the asset class.

Norway, Europe's second-biggest oil and gas exporter, generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67 per cent stake in Statoil, the country's largest energy company.

The fund last month said it returned 4.7 per cent in the third quarter.