NORWAY - Asset liquidity and the resulting reinvestment risk of property holdings are of no interest to Norway's NOK3.5trn (€459bn) oil fund, according to Karsten Kallevig, chief investment officer of real estate at Norges Bank Investment Management.
Discussing the Norwegian Pension Fund Global's approach to property investment - which has so far acquired select properties in Paris and London - Kallevig acknowledged that, at present, the scheme's foray into the market was simply a means of hedging inflation.
Speaking last week at the Reading Real Estate Foundation's annual lecture on the increasing influence of sovereign wealth funds, he said: "There are all kinds of debates on how much of an inflation hedge property really is, but it's certainly more than buying nominal bonds."
The Norwegian fund currently invests almost all of its assets in fixed income and equities, with 0.3% of the permissible 5% so far only invested in real estate.
Kallevig said Norges would seek out likeminded joint venture partners, such as the UK's Crown Estate, as it sought to establish a portfolio.
However, he stressed that any partner should view a joint venture with the fund as a long-term engagement.
"The last thing we want to hear is that [they] are definitely going to get out in five years time," he said.
"Having the liquidity is something we really don't like because then you get a reinvestment risk, which is unhelpful for where we are now."
Kallevig, who joined Norges from Grove International Partners as global head of real estate strategies, said the long-term approach was compatible with NPFG's approach to achieving a 4% real return each year.
"It is tough from an investment point of view to possibly make money by constantly flipping assets, where the stamp duty or transfer tax is 2%, 4% or 5%," he said, explaining it was "very hard" to make up for such losses.
The 4% real return was important to the fund, as Norway's parliament is each year allowed to draw down 4% of the fund's total assets - with the return target at least guaranteeing assets stay constant.
He conceded that Norges did not anticipate holding property assets indefinitely and that a sale would be likely to occur at "some point".
But he added that the manager did not enter into deals where the exit drove the transaction.
Citing the fund's Regent Street holdings as exactly how a long-term investment should look, he said the assets were "close to perfect" and "fantastic", but admitted the quality of the assets varied.
Looking towards future holdings, Kallevig said Asia-Pacific countries such as Japan, Singapore, Hong Kong and Australia were a "good bet" and would offer "decent" opportunities for the fund in the long term.