A shakeup of service providers is expected at Norway’s $456.4 billion (NOK 2,549 billion) Government Pension Fund Global, as the sovereign wealth fund gains approval to invest up to 5 per cent in real estate, at the expense of bonds, at the same time it looks to fill equities mandates in 21 different regions and sectors.
Norges Bank Investment Management, the manager of the fund, will determine a multi-year strategic plan for the management of the real estate portfolio which will include risk parameters and external mandate requirements. Until now it has invested in equities and bonds only.
The NBIM will put limits in the amount invested in emerging markets, real estate under development, real estate not let, and interest-bearing instruments. The real estate exposure does not include infrastructure.
In the new guidelines for Norges Bank’s work on responsible investment practices and exercise of ownership rights, the bank will also be required to integrate considerations of environmental issues, good corporate governance and social aspects in real estate management. In terms of environmental issues, it is directed to give priority to energy efficiency, water consumption and waste handling, among other considerations.
Overall the fund outsources just over 10 per cent to external managers across equities and bonds, and it has 34 external equities managers and six external bond managers.
The fund is currently looking to award 21 equities mandates – of between $50 and $250 million each – with renewable/alternative energy, clean technology, climate change, and water sitting alongside regional equities mandates in Americas, Europe, EEMEA and Asia.
Commenting on the decision to diversify into real estate investments for the first time, the Minister of Finance, Sigbjorn Johnsen said: “By investing in real estate, we spread the Fund’s risk even more. Real estate is the largest asset class after shares and bonds, and these investments fit well with the Fund’s investment profile”, said the minister.
The return objective for the real estate portfolio will be determined through a global real estate index.
“To reduce risk, we have made it a requirement that the investments will be spread over time, over countries and over types of real estate. Investments will principally be made in well-developed markets and within traditional types of real estate. Even so, we must be prepared for real estate prices to fluctuate a good deal”, said Johnsen.