Norway’s sovereign wealth fund is unlikely to take its real estate exposure beyond 5%, despite having recently lifted its allocation to 7%, Norges Bank Investment Management (NBIM) has admitted.

Yngve Slyngstad, chief executive of NBIM, which manages the ever-growing Government Pension Fund Global (GPFG), said the strategy was to increase the exposure by half a percentage point every year.

Speaking this week at NBIM’s annual news conference, Slyngstad said the rate had slowed from a full percentage point due to the size of the overall fund – in absolute terms, NBIM was maintaining a similar rate of new investment.

But Slyngstad also said NBIM had to factor in the potential for future falls in equity markets to artificially boost the real estate exposure – otherwise known as the demoninator effect.

“The margin of error is about 2%, so it’s unlikely with the current mandate that we will go above 5% in real estate,” he said.

Based on total property investments – including listed real estate – of NOK235bn, GPFG has just over 3% of its NOK7.5trn of assets invested in real estate.

However, NBIM also announed that listed real estate would no longer form part of the fund’s real estate allocation and would be included in the equities exposure.

Based on unlisted property investments of NOK191bn, GPFG has closer to 2.5% in real estate.

Real estate returned 0.8% in 2016, down significantly from 10% in 2015. Listed investments, which made up 21% of property investments at the end of 2016, were a drag on the return, making a 2.3% loss on their own.

On its own, unlisted real estate – before management costs – generated a 1.7% return when measured in the fund’s currency basket and 4.2% when measured in local currencies.

In 2016, the fund made NOK19bn (€2.1bn) of investments in unlisted real estate, down from NOK46bn in 2015, its busiest year for property deals.

“We buy core office properties, in good locations, that we think will be worth a whole lot more 30 years from now,” Slyngstad said.

“If we for some reason change that strategy, then yes of course we can increase the pace of that.”

London will continue to be a target market for real estate investments. Slyngstad told IPE Real Estate: “We have said clearly that we will remain in the UK market, both in the equity market, the real estate market and the bond market.”

Øystein Olsen, chairman of NBIM’s executive board, said that in the new two-year strategic plan for the fund, the manager would continue with the relatively conservative and robust plan for real estate it had followed for the number of years.

“We will continue to invest in a number of – say, 10-plus – major global cities, and London is definitely one of those,” he said.