The development of an infrastructure portfolio and further growth of its real estate holdings beyond 5% of assets must not change the investment risk profile of Norway’s NOK6.4trn (€706bn) sovereign wealth fund, the government has ruled.

The Norwegian Ministry of Finance said last year that it would consider relaxing the Government Pension Fund Global’s 5% cap on property, as well as allowing the fund to establish an infrastructure portfolio, with a working group convened to advise on the matter.

It has now released the working group’s mandate, asking for it to make clear how the changes would improve the sovereign fund’s risk/return profile.

The group has also been asked to take a recent paper into consideration that proposed Norges Bank Investment Management (NBIM) be allowed to shift the fund’s investment approach towards an opportunity cost model, similar to the ones pursued by the Canada Pension Plan Investment Board and Singaporean sovereign fund GIC.

“The assessments should further be based on a prequisite that the fund’s absolute market risk level should be approximately as today,” the mandate added.

The expert group will comprise Stijn Van Nieuwerburgh of the Leonard N. Stern School of Business at New York University, Richard Stanton, a co-chair of the Center for Real Estate and Urban Economics at the University of California, Berkeley and Leo de Bever, until recently chief executive of the Alberta Investment Management Corporation.  

It will also examine the opportunities for unlisted infrastructure investments, such as renewable energy developments and infrastructure in emerging markets.

In 2014, real estate returned 10.4% – rising to 27.5% when measured in kroner – and accounted for 2.2% of all assets.

NBIM currently aims to invest one percentage point of the fund’s assets in real estate for the next two years, meaning it would likely breach its 5% allocation target by 2017.