The Norwegian Government Pension Fund Global and AXA Real Estate will form a real estate joint venture, with the sovereign wealth fund committing €702.5 million ($1.01 billion) for a 50 per cent investment in seven Parisian properties.The $577 billion fund has only been able to invest in real estate since March last year, when it was granted a mandate to invest up to 5 per cent of assets in real estate through a corresponding decrease in fixed-income investments.
In the first instance the Norwegian Ministry of Finance dictated that real estate investments be spread over different types of sectors, properties and securities in European countries except Norway. It may expand into other geographical areas in the future.
The fund made its first foray into real estate last November, investing in a 150-year lease on a 25 per cent stake in The Crown Estate’s Regent Street properties in London. The purchase price was about $780 million which is a fraction of the overall allocation.
The Parisian investment is in properties that constitute about 156,000 square metres of primarily office space in the western and central business districts of the city.
Norges Bank Investment Management (NBIM), the investment management arm managing the pension fund, has bought the 50 per cent stake from AXA Group and will form a joint venture whereby AXA Real Estate will provide asset management services.
Chief investment officer for real estate at NBIM, Karsten Kallevig, said the deal reflects the fund’s preference to form partnerships with investors that both own and operate properties.
At the end of March, the fund had an asset allocation of 61.3 per cent in equities, 38.6 per cent fixed in income and 0.1 per cent in real estate.
Equities have been the stellar performer for the fund in the past year. The fund’s equity holdings, which represent about 1 per cent of the world’s listed companies, returned 13.3 per cent in 2010 in international currency terms, while fixed income investments returned 4.1 per cent.
The overall return was 1.1 percentage points higher than the return on the fund’s benchmark indexes. This marks the fifth-best performance by the fund since it was set up in 1990.