Norway to expand into US real estate

The world’s largest sovereign wealth fund expects one-third of its real estate investments to be located in the US over the long term.

Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund with a market value of about NOK3.7 trillion (€506 billion, $661 billion), hopes to begin moving capital into US real estate next year, with the intention of eventually investing one-third of its target allocation for the asset class in the country.

The sovereign wealth fund, which is managed by Norges Bank Investment Management (NBIM), is mandated to gradually invest up to 5 percent of its assets in real estate, which would be achieved through a corresponding decrease in bond holdings. Such a target would call for investing NOK250 to NOK300 billion in properties outside of Norway by 2020, based on the state fund’s current value and projections used by the country’s finance ministry. At the end of the third quarter, it had just 0.3 percent invested in real estate.

Norway’s real estate mandate, however, currently is restricted to Europe and would need to be expanded to include the US in order for it to begin investing in the country. NBIM said it did not have any specific timing for entering the US real estate market. “If possible, we would like to start investing next year, but that is dependent on getting a mandate from the Ministry of Finance,” a spokeswoman said in an email to PERE.

Government Pension Fund Global made its first real estate investments in 2011, initially focusing on investing in the largest European real estate markets. To date, it has executed deals in London, Paris, Frankfurt and Berlin and made its most recent acquisition last week, with the purchase of the Uetlihof office complex in Zurich from Credit Suisse for 1 billion Swiss francs (€825.5 million; $1.1 billion).

In a real estate investment report issued earlier this year, NBIM identified real estate investments as one of several possible ways of protecting the sovereign fund against inflation. “The long-term goal is to build a portfolio of real estate investments that delivers a good long-term return,” the manager wrote. “This will be achieved by diversifying investments and risk across multiple markets.”

New investments typically target well-developed markets and often focus on office and retail properties. An NBIM spokeswoman declined to elaborate further on the state fund’s US real estate strategy, given the current lack of an investment mandate in the country. However, Norway is said to be focusing on indirect investments – which could include buying units in a fund or shares in a property company that invests directly in properties – given the difficulty of investing directly due to tax issues relating to investing in the US, according to media reports.

NBIM currently has a real estate team of 20 people, up from three professionals in 2010, when the sovereign fund received its mandate to invest in real estate from the Norwegian finance ministry. A spokeswoman said the team is expected to grow further as the manager continues to expand real estate investments on behalf of the fund.