Norway's parliament is to debate proposals next week to create a separate real estate allocation for the country's massive government pension fund. If, as seems likely, the proposals are accepted, Norway's central bank will draw up a mandate to enable the EUR 250bn fund to divert 5% of its investments to global real estate and infrastructure. The move is seen as a way of diversifying risk, and mirrors pension funds in the US and the Netherlands who traditionally have large real estate investments.
Norway's parliament is to debate proposals next week to create a separate real estate allocation for the country's massive government pension fund. If, as seems likely, the proposals are accepted, Norway's central bank will draw up a mandate to enable the EUR 250bn fund to divert 5% of its investments to global real estate and infrastructure. The move is seen as a way of diversifying risk, and mirrors pension funds in the US and the Netherlands who traditionally have large real estate investments.
The Norwegian finance ministry has also recommended that the strategy of investing 60% of the fund, known as Government Pension Fund - Global, in bond and 40% in equities be altered. In future, equities will account for 60%, bonds 35% and the rest in real estate. Over time up to 10% of the fund which recycles Norway's oil revenues will be invested in real estate and infrastructure.
Martin Skancke, head of the asset management department at the finance ministry, told PropertyEU that it could takes years to reach an allocation of 5% for real estate. 'The pension fund is very large and this is a big decision that has to be planned and implemented very carefully.'
Skancke said the 5% allocation was a moving target as the fund is growing in size very quickly from week-to-week due to record oil price levels. The fund is expected to almost double in value to EUR 430bn by 2012.
He said the investment strategy could vary from market to market, and could include increased exposure to listed real estate companies or investment in unlisted vehicles and joint ventures. Expansion into unlisted real estate is viewed as necessary, partly because channelling the entire European real estate allocation in the listed sector could result in the fund owning 7% on average of all listed property companies in the sector.
The central bank will have to decide on the most 'sensible way', Skancke said, to implement a strategy that meets the fund's risk-return policies and takes transaction costs into account. The bank must still decide whether to assign in-house or external real estate managers, or both.
The fund's investment manager will have offices in London, New York and Shanghai, according to Eurohypo. The extent and beneficiaries of the new allocation has yet to be worked out but the strategic benchmark for the fund's equity investments indicates a 50% allocation to Europe. Real estate shares currently account for just under 1% of the of the fund's equity allocation. At end-December last year, the pension fund held relatively small stakes - ranging from 0.13 to about 1% - in a large number of listed property companies across Europe. On of the largest real estate holdings was a 1.04% stake in British Land.
