Norway’s sovereign wealth fund Norges Bank IM said it has reported ‘higher-than-expected returns’ from real estate since it began investing in the sector 10 years ago.
The fund, which today is one of the world’s largest property investors with a portfolio of SEK 273 bn (€26 bn), said that real estate has delivered annual returns of 7.7% after costs over the past decade, beating the funding by more than 3% while at the same time reducing the risk for the overall portfolio. The figure compares to overall returns of roughly 5% for overall investments for the past 10 years.
NBIM decided back in 2010 to invest up to 5% of its portfolio in real estate. The decision to invest in unlisted real estate followed a long deliberation about the feasibility of a central bank investing in private assets, says Yngve Slyngstad, CEO of Norges Bank Investment Management.
‘Investing in real estate would require a large team and a dedicated investment culture. In the end, global real estate was considered an ideal asset class for a long-term fund with no fixed liabilities and a target to grow in line with the world economy. Investing over time, with the most reputable local investors, in transparent and deep markets, would ensure that we invested in the right assets at the right price.’
He added: ‘We have emphasised building a global, but concentrated portfolio of properties. It has been important for the fund to find high-quality properties that we can own for a long time. The decade of investing in real estate has in all respects been a positive one for the fund.’
Real estate investments were initially focused on well-developed European markets, with the mandate broadened to include countries globally from 2013. The fund’s first investment was the acquisition in 2010 of a 25% stake in The Crown Estate's properties in Regent Street in London.
In 2011, the fund entered France with the purchase of a 50% stake in seven properties in and around Paris from AXA Group.
‘We expanded from office and retail into logistics (2012), and made our first investment without a partner (2014). Finally, we established Norges Bank Real Estate Management as a separate organisation (2014),’ noted Slyngstad. ‘The returns have exceeded our expectations, and I believe the quality of the assets is outstanding.’
