Norway’s state fund may invest US$4b on global property in 2015

Sovereign wealth fund already owns property in New York, London, Paris and Berlin - with Singapore and Tokyo the target for future investments

PUBLISHED : Monday, 09 November, 2015, 5:02pm
UPDATED : Monday, 09 November, 2015, 5:02pm

Norway's US$860 billion sovereign wealth fund may invest more than US$4 billion in property worldwide this year, breaking the record it set last year, its chief executive said, as the fund builds up its portfolio of real estate.

The fund invests Norway's revenues from oil and gas production in stocks, bonds and property. The latter - mostly commercial real estate - represented 3 per cent of the fund's total value at the end of the third quarter but will reach 5 per cent over time.

Last year, the fund invested a record 36 billion crowns (HK$32.1 billion) in net real estate purchases, CEO Yngve Slyngstad told a seminar on Friday, and may be on track this year to do more.

“This year we are still below our record of 36 billion last year, but there is ... potential that we will actually pass it,” he said. The fund has so far invested some 28 billion crowns in property in 2015, he said.

Separately, the fund said in a discussion paper published early on Friday that it may be desirable to invest up to 15 per cent of the fund's value in property.

“The vast majority of academic studies comes to the conclusion that adding real estate does improve the risk-return profile of a mixed-asset portfolio,” the note said. “The median range of the suggested allocations to real estate in the 30 studies reviewed was 15 per cent.”

In general, the fund was aiming to invest 30 billion to 50 billion crowns in property per year, Slyngstad said. It funds all its real estate deals by selling government bonds from its portfolio of foreign fixed income assets.

“Every real estate investment deal we do is funded by sales of government bonds,” he said.

The fund aims to own property in 10 to 15 major cities over time and is already present in eight, including New York, London, Paris and Berlin. Next up are Singapore and Tokyo, where the fund recently opened offices.

“We want to capture big trends. Globalisation is one of them,” said Slyngstad, adding that the fund was becoming so large that it would have to do more deals itself. Until now, the fund has done joint deals with real estate actors, such as Prologis.

The fund will continue to expand its investments but will do so carefully. “We should be in more cities. But we have to be careful and not make huge mistakes. So we have to take it one city at a time,” said Karsten Kallevig, the fund's chief investment officer for real estate. “Over time we will see what we will add.”

“We are building up from scratch. We have never invested in Asia (real estate) before. Property is very local. We must be present and be able to follow up. It is about data, do we understand the legal system etc,” said Kallevig, adding that he “was in no hurry” to do deals in Singapore and Tokyo.