Norges Bank Investment Management, which manages the Norwegian $2,908 billion kroner ($500 billion) Government Pension Fund Global, has made its first property investment following approval by the Norwegian Government to invest in the asset class in March.
The fund received a mandate in March 2010 to gradually invest as much as 5 per cent of assets in real estate with the allocation coming out of fixed income.
The fund’s asset allocation is 60 per cent equities, 35–40 per cent fixed income and as much as 5 per cent in real estate. All investments must be outside Norway.
This first property investment is a 150-year lease on a 25 per cent stake in The Crown Estate’s Regent Street properties in London. The purchase price is expected to be about 4.2 billion Norwegian kroner ($700 million) which is a fraction of the overall allocation.
The Ministry of Finance dictated that real estate investments be spread over different types of sectors, properties and securities in European countries except Norway. The fund will mainly invest in unlisted real estate, well-developed property markets and traditional property types.
A real estate investment is defined as the right to land and buildings on land, not fundamental infrastructure such as roads, railways, airports and harbours. The fund can also invest in property, equity and interest-bearing instruments issued by listed or non-listed companies, fund structures and other enterprises focused on buying, developing, managing or financing real estate, as well as derivatives that are naturally linked to real estate instruments.
The real estate portfolio will be benchmarked against a European property index supplied by Investment Property Databank (IPD), which measures property performance across 15 European countries.
The fund’s benchmark may over time expand to include other countries in the IPD’s global property index, such as Australia, Canada, Japan, Korea, New Zealand, South Africa and the United States.
The fund is also mandated to have 50 per cent of its equity investments in Europe, 35 per cent in the Americas, Africa and the Middle East, as well as 15 per cent in Asia and Oceania. As well as 60 per cent of its fixed income investments in Europe, 35 per cent in the Americas and 5 per cent in Asia and Oceania.