Norway’s SWF Lays Out Three-Year Strategic Plan

The world’s largest sovereign wealth fund is serious about its diversification plans, with changes ahead for its equities, fixed income and real estate holdings by 2016.

Norway’s $888 billion sovereign wealth fund plans to bring more of its real estate portfolio under in-house management as part of a move to broaden its portfolio.

Laying out its plan for 2014-16 in a strategy report published this morning, Norges Bank Investment Management (NBIM)—the group responsible for the management of the Government Pension Fund Global—said it would add “new frontier markets” to its equity portfolio, as well as include more currencies in its fixed income allocation and take larger stakes in companies.

NBIM said it planned to invest 1% of the fund a year—roughly equal to $9 billion according to the fund’s current size—into private real estate markets between 2014 and 2016. The group also stated its intention to take on full ownership of more property investments.

“Our real estate investments to date have primarily been implemented through joint venture agreements,” NBIM said. “We will prepare the organisation for management of fully owned properties and a more active role in the development of our properties. Larger ownership stakes in listed real estate companies and public-to-private transactions will be considered.”

The move is part of plans to “build a global, but concentrated, real estate portfolio” with investments focused on major cities in the US and Europe, NBIM said.

“We will continue to capture globalisation through investments in global distribution networks,” the group added, implying that the fund could replicate the deal struck late last year with US developer Prologis to invest jointly in a portfolio of logistics properties.

Elsewhere, NBIM said it planned to take larger ownership stakes in “selected companies”, with the number of stakes of 5% or more rising to 100 by 2016. Due to its size, the fund already owns an average of 1.3% of every listed company in the world.

“With more than 8,000 companies in the fund, we are mindful that we cannot cover all companies in depth,” NBIM said. Instead, external managers are to be used for exposure to emerging and frontier markets, with the number of external mandates across equities and fixed income expected to hit 100 by 2016.

The world’s largest sovereign wealth fund appears serious about its diversification plans. As well as the expansion of its real estate capabilities, Petter Johnsen, CIO for equities, has already spoken this year of a recruitment drive to double the Government Pension Fund Global’s equity team to roughly 200 people. It has also advertised for economists to aid its asset allocation team and has lobbied the Norwegian government for permission to invest in private equity and infrastructure.

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