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Kallevig: Nowhere to spend Norway’s billions

Norway’s sovereign wealth fund has money to deploy but few attractive opportunities, its real estate head said in a Wall Street Journal interview.

The world’s biggest sovereign wealth fund is having a difficult time parking its real estate capital. The fund lacks attractive opportunities to deploy its billions in real estate, Norges Bank Investment Management’s property chief executive officer said in an interview with the Wall Street Journal on Thursday.

“It’s natural for us to proceed at a slightly slower pace,” Karsten Kallevig said. “Our appetite hasn’t been reduced. But times are uncertain.”

Kallevig joined Norway’s sovereign wealth fund in 2010 as the global head of real estate asset strategies before a stint as chief investment officer and then was promoted to the top real estate job last month. The sovereign wealth fund, which manages 7.3 trillion krone (€769 billion; $835 billion), plans to invest about 50 billion kroner annually in real estate, it said in Kallevig’s December promotion announcement. As of September 30, 3 percent of the fund was invested in real estate. Norges Bank Real Estate Management was created as a separate entity from the investment arm in July 2014.

The new real estate CEO cautioned that, despite a mandate to invest more in real estate, the fund will not see its recent 7 percent annual return from the asset class.

“In the recent five years, we’ve had returns that we absolutely can’t expect over time,” Kallevig said. “Property markets are highly priced.”

A price correction could provide a better opportunity to write large checks for big portfolios. In November, NBIM signed a 75-year contract to purchase a 44 percent stake in 11 Manhattan offices for $1.56 billion. The sovereign wealth fund has been expanding in real estate worldwide, acquiring properties in New York, Paris, London and Berlin. Kallevig said the fund plans to enter the Tokyo and Singapore markets.

To keep pace with an increased real estate mandate, Kallevig plans to nearly double his current team to 200 and seeks to oversee more properties without partners. The US is the exception to that plan, with tax rules that make sovereign wealth investment more attractive through partnerships.