NORWAY - The Norwegian Ministry of Finance has today revealed the Government Pension Fund-Global fund will in future be invested in real estate as planned, albeit investments will be made over a long period of time, in a bid to reduce risk.
New rules stipulate the Norway-Global fund may invest up to 5% in real estate, or NOK130bn (€16.16bn) , as previously stated, at the expense of bonds. However, it will take several years to invest the assets in the real estate market in part because of the size of the portfolio and the risks associated with the volatility of the property sector.
This new guidelines will allow the NOK2.6trn fund to invest in non-listed investments, while the return objective for the real estate portfolio will be determined through a global real estate index.
Some of the conditions are similar to existing guidelines on the sovereign pension fund, particularly in relation to responsible investment practices and exercise of ownership rights, as Norges Bank Investment Management - currently manager over several of the pension fund's external asset classes - will be required to integrate considerations concerned with environmental issues, good corporate governance and social aspects in real estate management.
In terms of environmental issues, NBIM is directed to give priority to energy efficiency, water consumption and waste handling within real estate management, among other considerations.
"By investing in real estate, we spread the fund's risk even more," said minister of finance, Sigbjørn Johnsen, in a statement.
"Real estate is the largest asset class after shares and bonds, and these investments fit well with the fund's investment profile. In order to ensure that the investments are carried out in accordance with the Ministry's guidelines, comprehensive reporting requirements have been established."
He continued: "In order to reduce risk, we have made it a requirement that the investments will be spread over time, over countries and over types of real estate. Investments will principally be made in well-developed markets and within traditional types of real estate. Even so, we must be prepared for real estate prices to fluctuate a good deal", added Johnsen.