Norwegian SWF plans $27bn expansion into real estate

Norges Bank Investment Management (NBIM), the arm of Norway's central bank responsible for managing the country's $884 billion sovereign wealth fund, is set to establish a global real estate investment team to invest $27 billion over the next three years in private real estate.

NBIM today released its strategy through to 2016, saying the size of the management company will grow from 370 today to 600 over the period, including 200 dedicated to real estate investment. The majority of new hires, it said, will be investment professionals in the fund's international offices.

The push to global real estate is part of a strategy to develop the fund's ‘absolute return' portfolios in environmental, real estate and infrastructure investments. NBIM said it also expects the number of significant holdings, with more than 5% ownership, to increase to 100 by 2016.

There will be an increase in external mandates to manage a growth in the fund's investments in emerging markets. The share of the fund managed by external managers will be targeted at 5% as the fund's investments in emerging markets rise, and NBIM said it expects to have handed out 100 external mandates by 2016.

The fund uses external managers for the majority of its emerging markets equity investments and all its investments in frontier markets, and they will be used to complement "internal efforts in specific strategies such as investments in smaller companies and environmental mandates". Environmental-related mandates in equity and bonds, NBIM said, will increase to 50 billion kroner ($8.1 billon) and be diversified across renewable energy, energy efficiency, water and waste management, and pollution control.

The number of specialist-sector portfolio managers will increase to 50 over the period, with the fund specifically encouraging "concentrated portfolios… to allow for high conviction, long-term investment focus, and thorough in-house fundamental research".

Another area in line for upskilling will be securities lending, to boost the "efficient use of our holdings". "The infrastructure needed to lend securities in new markets and segments will be developed", the fund said.

Bricks and mortar

The move to more investment in real estate is in line with researched released last week by investment manager Invesco, which surveyed sovereign wealth funds around the world and found just over half of respondents reporting an increase in exposure to the class in 2013 – with more planned this year.

NBIM said its new real estate team will give the fund the capacity to own and manage properties on its own, rather than just in joint venture structures, which it has used up till now. US investments will be concentrated in New York, Washington, DC, Boston and San Francisco, NBIM said, while in Europe, investments outside London and Paris will be "selectively extended". Over the next three years, the fund will "also consider investment opportunities in global cities outside Europe and the US".

According to NBIM, the management of its real estate investments "requires a different governance structure than public market investments", with each investment possibly requiring a "tailor-made investment structure". Investing in real estate, it said, "is resource-intensive", and "the potential to exploit synergies between our real estate investments and our public market investments is limited".