Norway oil fund puts brakes on RE 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 €267bn pension has allocated 5% to real estate, but said it will not impose a 'fixed investment plan' in the current environment.

Europe’s biggest state pension fund is to delay investing in real estate for the first time, citing negative global investment market conditions and the need for new investment regulations.

In a report called “the management of the government pension fund in 2008”, Norway’s ministry of finance said that despite growing the Norwegian oil fund to NOK2.36 trillion ($354 billion; €267 billion) in 2008 thanks to booming oil prices and currency gains, it was not intending to lay down a “fixed investment plan (to real estate) for the coming years.”  The report added: “Phasing will have to be adapted to market conditions and capacity.”

The apparent slow down in real estate investment plans follows months of anticipation by real estate fund managers that the Norway oil fund would channel five percent of its capital to real estate – mainly via unlisted vehicles.

The ministry said this presented challenges including measuring and assessing return and risk. “It is the therefore necessary to establish special required rates of return, risk limits and reporting requirements to ensure fulfilment of the ministry’s objectives for the investments in real estate,” it continued in the report.

Last May, the ministry decreed in a white paper that it would allocate five percent of the fund's capital to real estate. Months before, the investment management part of Norges Bank, which has been charged with administering the investments of the fund, recommended in a letter to the ministry to allocate 10 percent of the capital to real estate, but as market conditions worsened, the ministry opted to half the amount originally proposed.

Norges Bank hired former Merrill Lynch managing director Paul Golding to head its property team ahead of a decision to invest in real estate for the first time.