Norwegian oil fund puts brakes on spending plans

Norway's ministry of finance has signalled its intention to delay its real estate investment plans as global market conditions continue to deteriorate.

The Government Pension Fund Global has ruled out extending into high-yield and emerging market bonds, and has also warned it is unlikely to reach its 5% allocation to real estate for 'several years', newspaper IPE Real Estate has reported.

A report from the Ministry of Finance on 'the management of the government pension fund in 2008', said despite deciding to move into real estate in 2008 new regulations are required to allow it to invest through unlisted instruments, and these are not expected to be finalised until sometime in 2009.

In addition, the report noted the global real estate market had poor returns and a significant drop in turnover in 2008, so the ministry confirmed it 'is not intending to lay down a fixed investment plan for the coming years, as the phasing-in will have to be adapted to the market conditions and capacity'.

It suggested the property investments in the first few years will 'probably be concentrated in a number of chosen areas, and it will take time to build up a global real estate portfolio with a high degree of risk diversification. The ministry assumes it will be several years before the real-estate portfolio constitutes 5% of the fund'.

The new rules for real estate will be included in a new regulation governing the management of the Government Pension Fund Global, expected to come into force on 1 January 2010, so although they have yet to be finalised the report confirmed restrictions are going to be introduced so 'unlisted real-estate companies and funds cannot be established in closed jurisdictions' or tax havens.

In a review of its investment strategy, the ministry highlighted the decision in 2007 to gradually increase its equity allocation from 40% to 60% now means the existing portfolio is at 50%, equating to an average ownership stake in the world's stock markets of 0.75%.