Norway SWF Sets Out Case for Real Estate Expansion

The world’s biggest sovereign wealth fund has published research advocating a 15% allocation to property.

Norway’s sovereign wealth fund has made the case for tripling its target for real estate investment to 15% of its $854 billion portfolio.

Norges Bank Investment Management (NBIM)—which manages the Norway Government Pension Fund Global—published two research papers on Friday detailing the case for expanding its investments in property.

In one paper, “The Diversification Potential of Real Estate”, the fund’s staff analysed 30 studies into real estate allocations. The median allocation recommended by the 30 studies was 15%.

“The vast majority of academic studies come to the conclusion that adding real estate does improve the risk-return profile of a mixed asset portfolio,” the fund said.

At the end of September, the fund had 3% in real estate following a series of major acquisitions of offices and logistics properties in major cities around the world in the past four years. This compares to its current 5% target. A 15% investment in property would mean roughly a $128 billion allocation based on the fund’s current size.

Any change to the fund’s investment strategy must be agreed by Norway’s government. NBIM has previously lobbied the government for permission to invest in private equity and infrastructure.

Yngve Slyngstad, CEO of NBIM, told reporters that the fund aimed to re-allocate between $3.5 billion and $5.8 billion from government bonds to real estate every year.

The sovereign fund also aimed to expand the number of cities in which it is invested, Reuters reported. NBIM currently owns properties in eight major cities including New York, London, Paris, and Berlin, and has recently opened offices in Singapore and Tokyo with a view to buying Asian real estate for the first time.

Slyngstad also hinted that NBIM would have to conduct some future property transactions alone due to the fund’s size. The world’s biggest sovereign wealth fund has previously mostly invested alongside specialist real estate partners.

NBIM’s second paper, “Global Trends and Their Impact on Real Estate”, details the property trends from which it is seeking to benefit.

Related: Norway Outlines Staff Plan to Boost Real Estate Holdings, Sovereign Wealth Funds’ Real Estate Rush, Bespoke Deals on the Rise in Real Estate