Norway’s Government pension fund returns 3.9% from RE

The NOK4.397 billion fund returned just 0.1 per cent in the second quarter of 2013 though real estate managed 3.9 percent to help lift performance.

The Norwegian state fund currently has 63.4 percent of its portfolio locked up in equities and 35.7 percent in fixed income, but was lifted by its investment in real estate that it only diversified into three years ago. In a quarterly report, the NPFG said real estate investments increased in value by 3.9 percent.

The fund has a long term mission to have up to 5 percent of its assets in real estate, but current figures show it has managed to grow its portfolio to €5 billion or 0.9 percent,  less than one-fifth.

To increase its allocation, it has been trying to add to its portfolio by extending to new markets. Having begun close to home in Europe, earlier this year it started investing in prime North American property.

Norges Bank Investment Management (NBIM), which invests on behalf of the Norwegian pension, agreed to buy a 49.9 stake in a portfolio of five offices in New York, Washington and Boston from TIAA-CREF for $600 million in February.

Its quarterly report pointed to a latest deal being an agreement to purchase 11 distribution facilities in the UK together with industrial real estate company Prologis, a transaction yet to complete.

NBIM’s share of the purchase price for the 2.4 million square foot portfolio was £56 million (€65 million; $86 million).

In a short statement, Yngve Slyngstad, chief executive officer of Norges Bank Investment Management said overall returns from its assets were boosted by strong markets in the US and Japan, while emerging markets “pulled in the other direction.” He added: “Fixed-income returns were undermined by a rise in global yields.”

The fund was nonetheless helped by a weakening krone against many of the main currencies during the quarter, increasing the fund’s value by NOK 139 billion. It also benefited from new capital of NOK 58 billion kroner transferred from the government.