(August 10, 2012) — The largest sovereign wealth fund in Europe may be poised to take a majority stake in one of the United Kingdom’s biggest shopping malls, after snapping up iconic retail space in the nation’s capital.
The Norway Pension Fund – Global has agreed to purchase a 75% stake in Meadowhall, a 22 year-old development near Sheffield in the North of England, according to Reuters, who quoted sources close to the deal.
The $601 billion fund spent $45 million on a section of Regent Street last year, one of the most high profile shopping areas in London. It also bought French retail buildings this year. The stake in the latest target could be worth up to £1.1 billion, the newswire reported.
Despite its size and relative long-term liabilities, the fund has only recently begun investing in illiquid assets such as real estate. Only 0.3% of the huge portfolio is invested in the asset class – this allocation made a 0.3% return in the second quarter of this year. In the first three months, this allocation performed better, producing a 2.18% return, according to the SWF’s second quarter report that it published today.
The report also showed its equity allocation – worth 59.6% of the overall portfolio – made a 4.6% loss over the second quarter. The biggest loss was attributed to its holding in Barclays Bank, which was hit by the Libor scandal shortly before the end of the quarter. Its fixed income portfolio made 1.5%.
The reticence to embrace illiquid assets is has been due to the investment council committing to the citizens of Norway – the ultimate owners of the fund – that assets will be able to be instantly valued, which is an inherent problem with such illiquid holdings. This has also been a stumbling block to the fund entering other assets that are not instantly and easily tradable.
In an interview with aiCIO this year, Petter Johnsen, CIO (equities) at the fund, said: “Looking at our ambition of a 4% real annual return, infrastructure could make sense. Real estate was our first step into private market investments-infrastructure has attractive characteristics but we are not at that stage yet.”
As for the UK, however, economic times look to have taken a turn for the worse with the Bank of England revising down its growth forecast for the year earlier this week. The country is already back in recession, and the government has taken to more cuts to spending to try and stop the damage getting worse -however, there have been few signs of success.
For an in-depth study on the Norway Pension Fund Global, click here.