NORWAY - Europe's largest pension fund, the NOK2136bn (€267bn) Norwegian Government Pension Fund - Global, has said it will switch 5% of its asset to real estate, while moving more money into emerging markets.
Finance minister Kristin Halvorsen has announced a review of the fund's investment strategy has prompted the ministry to include real estate as a separate asset class, which will be offset by a reduce allocation to fixed income, from this year.
An allocation to real estate was widely anticipated, as the pension fund appointed PwC in October last year to provide tax advice and support services on investing in real estate, and last month signed real estate consultants Partners Group to provide specialist investment consultancy. (See earlier IPE Real Estate stories: PwC to advise Norwegian fund on real estate and Norway appoints Partners Group for real estate advice)
Moreover, NBIM - which manages the pension fund assets on behalf of the Norwegian government - last year appointed Paul Golding, former head of Merrill Lunch's real estate investment banking business in Europe and the Middle East, as its real estate head.
"Investing a portion of the fund in real estate is expected to improve risk diversification and enhance returns," said Halvorsen, in the annual white paper report to Parliament on the management of the fund.
She added: "Including more emerging markets in the benchmark is expected to improve risk diversification, and the benchmark portfolio will better reflect developments in global stock markets."
The fund will also increase its allocation to emerging markets from 5%to 10%and plans to expand the benchmark portfolio for equities toincludemore emerging markets, including China, the Czech Republic,Egypt,Hungary, India, Morocco, Pakistan, Peru, Poland, thePhilippines,Russia, Thailand and Turkey.
Last month, the 2007 annual report from Norges Bank Investment Management (NBIM)revealed the annual return of the fund was 0.22 percentage points below the benchmark portfolio defined by the Ministry of Finance. (See earlier story: Norway misses pensions benchmark with 4.3%)
The fund returned 4.3% in 2007, which is the first time the fund hasachieved lower returns than its benchmark portfolio since 1998.