After Initial Real Estate Purchase, Norway's SWF May Take Hiatus Till 2013

(April 18, 2011) — Following its purchase of 25% of London’s Regent Street this year, Norway’s sovereign wealth fund is in no rush to continue allocating to the sector, envisioning better deals after 2013.

While the fund obtained approval to put 5% of its capital in real estate last year and earmarked $25 billion for the sector, moving away from stocks and bonds to improve returns, Yngve Slyngstad, chief executive officer at Norges Bank Investment Management, has stated that the sovereign wealth fund is not overly eager to reach the 5% cap.

In November, Norway’s central bank governor Svein Gjedrem said that its sovereign wealth fund would begin buying real estate in the near future, along with equities and fixed-income securities. The fund agreed to spend about $722 million for a 25% stake in the UK Crown Estate’s Regent Street properties in London — consisting of properties located on Regent Street. The deal represented the first real-estate investment by the oil-rich country’s sovereign wealth fund. “A move into real estate will strengthen the fund, which today is solely invested in stocks and bonds,” Slyngstad, chief executive officer of NBIM, which manages Norway’s Government Pension Fund Global, said in a statement.

Last month, Dag Dyrdal, Chief Strategic Relations Officer at NBIM, told aiCIO that the fund’s expansion into real estate will be gradual and conservative, with no time limit, noting that this year and next year, the fund will look toward investing in property in other major European markets — in the UK, France, and Germany — and will eventually seek markets in other areas inside and outside of Europe. “Overall, allocation is decided by the Ministry of Finance, which seeks stable and long-term returns. For a fund of this size, it’s not easy to apply tactical applications,” he said.

Other funds have been slowly increasing their real estate allocations this year. In February, the Canada Pension Plan Investment Board (CPPIB) agreed to purchase a large stake in Europe’s biggest retail center. Following the financial crisis when the value of real estate investment plummeted, the CPPIB, similar to other funds around the world, had been pursuing real estate investments, signaling renewed confidence in real estate investments and a heightened faith in a rebound. David Denison, chief executive of the CPPIB, which oversees $140 billion in assets for Canada’s national pension plan, told the Wall Street Journal that he has witnessed a spike in the availability of commercial real estate in the US, and that he is expecting that trend to continue.