Norway SWF seeks transactions of more than $500m

Norway’s sovereign wealth fund is expected to make investments of $500 million or more per deal as it seeks to reach its five percent allocation to real estate.

Global head of real estate Karsten Kallevig told Reuters The Government Pension Fund Global, formerly known as The Petroleum Fund, would take 25 percent to 85 percent stakes in investments.

“Alignment of interest is very important for us,” said Kallevig, who late last year led the fund into making its first real estate investment in a joint venture company with the Crown Estate which controls London’s Regent Street, the popular tourist shopping road. In that deal, the fund acquired a 25 percent stake in the partnership for £448 million (€531 million; $710 million).

Kallevig said the fund was motivated to make investments in partnerships with businesses which enable it to take positions of control over major decisions while not taking part in ‘the day to day management of the properties’.  “Our key is to fund local partners with skin in the game,” he said.

This is in keeping with sentiments expressed by other large real estate investors such as the Abu Dhabi Investment Authority, China Investment Corporation, the Canada Pension Plan Investment Board and Netherlands based APG. The latter three of these teamed up earlier this month to buy a large industrial real estate portfolio from Dutch financial group ING.

Initially seeking commercial real estate investments in London, the Norway fund would then expand its target markets to include Paris, before cities in Germany, during 2011. Following that, it would seek to make investments in the US before looking at emerging markets such as those in Asia. It is expected that the fund reaches its 5 percent allocation between four and eight years.

The fund, which is managed by Norges Bank Investment Management, was permitted by the Norwegian government to invest up to 5 percent of total assets in real estate last March. Kallevig was appointed months later from the Japanese division of private equity real estate firm Grove International Partners to lead its real estate investment strategy.

The fund is expected to invest in a range of non-listed real estate although it is not looking to inves into traditional private equity real estate funds in the near future. Kallevig told Reuters it would make investments in retail and office properties. He added that the use of excessive financing was unlikely – the fund’s gearing cap is 50 percent loan to value. Despite that the fund is expected, in time, to make both ‘low yield’ and ‘high yield’ investments.

The fund’s long term return aspiration across all investments is approximately 4 percent a year.