No-way, Norway

Why a super-sized cheque book means no commitments by Norway’s sovereign wealth fund to opportunity funds - at least for now

I think we can all recall the excitement generated when Norway talked about allocating up to 5 percent of its $524 billion sovereign wealth fund in global real estate a couple of years ago.

I know PERE was.

We had visions of dozens of large commitments being made overnight to opportunity funds run by our loyal readers.

There was almost a feeling that it could possibly be the answer to the industry’s problems as the global economic crisis sapped the strength from hitherto potent limited partners around the world.

Yet having just got off the phone with Karsten Kallevig, the global real estate head of Norges Bank Investment Management, it is safe to say Norway is not the Holy Grail many had hoped for when the international fundraising climate turned for the worse.  

Kallevig, who joined NBIM from Grove International Partners in September, has a simple message: it is not going to be investing in opportunity funds, at least not at this stage.

This is the first time this has been made clear, so sorry to break the news.

But one has to admit, Kallevig’s thinking here makes a lot of sense.

His challenge is this: He has to invest more than $25 billion in real estate as a ‘long-term’ investor.

The idea is to build a solid portfolio that will stand the test of time. As he points out, the kind of cheque size the fund is going to write per investment – more than $500 million – means if it were to invest in an opportunity fund, it wouldn’t just be an investor in the fund given the size of the commitment – it would most likely BE the fund in these post- mega fund days. What would be the point of that? And what would be the point of a commitment to a fund with x years left before it has to sell? That doesn’t work for Norway either.

Much more sensible is to enter into joint ventures with partners with a similar outlook on the world and with more permanent capital that can manage the assets. Hence, the first deal it has struck is a joint venture with The Crown Estate to buy a quarter of Regent Street for £452 million ($715 million).

However, before you hit your Delete Email button in dismay, ponder this ray of light: “Fast forward a couple of years and the situation could be very different”. His words, not mine.

Once Norway has built a real estate portfolio of more solid stable assets, investing in real estate funds or separate accounts for special strategies and special markets, might make perfect sense, he says.

Do not be mistaken. By opting to invest in joint ventures and other direct structures in the first bloom of its real estate programme, Norway’s sovereign wealth fund is not making a critical statement about opportunity funds. It is not saying opportunity funds are bad. It is just saying that building the JV approach with good established investors makes better sense in the first place. We all know by now, that’s not an uncommon theme among investors of its magnitude.