Norges Bank Investment Management (NBIM), the steward of the roughly $860 billion Norwegian Government Pension Fund Global, has laid out a plan to build a global property investment portfolio by investing approximately $26 billion in the asset class over the next three years, according to the sovereign wealth fund’s most recent report.
To date, NBIM has assembled a real estate portfolio valued at approximately $10 billion, reflecting 1.2 percent of the fund’s total assets. In 2010, the Norwegian government permitted the sovereign fund to invest up to 5 percent of its capital in property.
NBIM has remained a cautious investor so far, primarily keeping to mature markets in Europe such as London and Paris. To grow its portfolio globally, though, the investor expects to invest one percent of the fund annually each of the next three years in private real estate markets in the US and Asia, or roughly $8.6 billion each year. If NBIM achieves its investment goals over the next three years, that would bring the value of its global real estate portfolio to approximately $36 billion.
“We aim to build a global, but concentrated, real estate portfolio,” NBIM stated in the report. “Our strategy is to focus our investments in a limited number of large global cities, where we invest in core retail and office properties.”
In the US, NBIM is intending to focus on the markets of New York, Washington DC, Boston and San Francisco. In Europe, investments outside of Paris and London will be “selectively extended.”
NBIM also recently revealed that it is plotting investments in two Asian cities, but the sovereign fund told PERE that those cities have not yet been selected. The investor is looking for cities in the region “with the best growth potential and where there are supply constraints” and will focus on mainstream property types like offices and logistics.
Thus far, real estate has performed far better than the sovereign fund requires and also has beaten the IPD benchmark, a commonly-used barometer for assessing real estate performance. While it is required to make 4 percent a year across asset classes, NBIM’s property investments actually returned 11.8 percent in 2013 versus the IPD average of 8.3 percent.