​Norway’s oil fund to axe real estate arm and reduce target allocation

Unlisted real estate is set to play a smaller role for Norway’s sovereign wealth fund than envisioned previously, after Norges Bank Investment Management (NBIM) announced it would axe its separate property arm launched four and a half years ago.

NBIM, which manages the NOK8.6trn (€883bn) Government Pension Fund Global, has reduced its target real estate allocation from 7% to 3-5%.

It is also discontinuing Norges Bank Real Estate Management (NBREM) as a separate organisational unit, and plans to combine unlisted and listed real estate investments.

The target of 7% was established in 2016, but Norges Bank has since conceded that the fund’s actual allocation to real estate was unlikely to surpass 5% due to the size and growth of its asset base.

Norges Bank today said it had written to the Ministry of Finance, presenting a new strategy for real estate investments.

In the letter, Øystein Olsen, chairman of Norges Bank, and Yngve Slyngstad, chief executive of NBIM, said: “With a limited portfolio of unlisted real estate and a desire to integrate listed and unlisted real estate, the executive board finds that it is no longer appropriate to organise the management of unlisted real estate separately.”

It said the board had decided to discontinue NBREM, which will be integrated into NBIM, with a new organisational model coming into effect from 1 April 2019.

The aim is to have a real estate portfolio of the order of 3-5%, it said, comprising both listed and unlisted property investments — and with no specific limit for the proportion of listed real estate investments.

The real estate portfolio should be broadly diversified, and the strategy simple, “with weight given to cost-efficiency and investments that require limited resources”, Norges Bank said.

The sovereign wealth fund will also be limited in how much it invests in developments in the future.

“There should be sufficient flexibility to take advantage of special investment opportunities that may arise in the unlisted real estate market,” it said.

The fund’s management has been criticised in Norway for the high cost of its unlisted real estate operation, which was seen by some as targeting trophy assets.

NBIM first confirmed its intention to allocate funds to real estate back in 2007, but it was not until 2010 that it made its first acquisition.

NBREM was then launched in July 2014 as a separate division for real estate investment, under the leadership of Karsten Kallevig, who was appointed chief executive of the unit in January 2016.

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