Daily Management Review

Norwegian Oil Fund Turns To Real Estate


Norwegian Oil Fund intends to increase investment in real estate. The largest sovereign fund in the world, which assets amount to about $ 830 billion, is seeking to improve its performance. The Fund's income calculated for 2015 was the lowest since 2011.

The Oil Fund plans to invest $ 41.5 billion in the global real estate market this year. If investments are successful, the Fund may invest a further $ 16 billion in real estate.

To achieve this, the fund plans to increase number of staff units engaged in real estate, from 104 to 200 people by 2017, according to the annual fund's report.

"Our goal is to form a global, but concentrated real estate portfolio. The strategy is to invest in a limited number of major cities in key markets, using global logistics market opportunities", - stated the fund's annual report.

"Net income from property rental is expected to be relatively stable over time, which will ensure a steady cash flow to the fund", - stated the fund's materials.

At the end of 2014, Norway's oil fund has already doubled the number of employees of the property division from 52 to 104 employees. The share of real estate in the fund's assets will increase from 0.3% in 2011 to 5% in 2017.

According to the president of Sovereign Wealth Fund Institute Michael Maduell, Norwegian Oil Fund "joined the game of real estate later," compared to the other public funds, such as the Abu Dhabi Investment Authority, Kuwait Investment Authority and Singapore's GIC.

However, other large investors can follow the example and increase investment in real estate, says a representative of Knight Frank Nicholas Holt.

He estimated that about two-thirds of the 50 sovereign wealth funds around the world, which together manage assets worth $ 6.5 trillion, have already invested in real estate, including funds of China, Singapore and Azerbaijan. Those funds, that have not invested in real estate yet or invested less, may try to catch up.

Paul Jayasinghe of Willis Towers Watson also noted that the real estate market is attractive to sovereign wealth funds. "Real estate is a very good asset class, especially in light of the low bond yield. Real estate provides a stable income and the potential for growth. In terms of sovereign wealth funds, real estate is one of those asset classes that can absorb huge amounts of money" - said the expert .

Last year, the property was one of the most profitable assets of the Norwegian Oil Fund. The yield of 10% was much higher than return on stocks (3.8%) and bonds (0.33%).

source: ft.com