The Strategist

Norwegian sovereign fund switched from oil to real estate

09/10/2018 - 16:24

The fund, with its trillions of capital, which has real estate in the US, Britain, France, Germany and Switzerland, is now trying to enter the real estate market in Singapore.

Norges Bank
Norges Bank
When the largest sovereign fund of the planet, the Norwegian Welfare Fund, with assets of over a trillion dollars, was going to buy real estate in 2010, its managers aimed at about a dozen of the world's wealthiest cities. After eight years of working with real estate, the branch of the Fund specializing in real estate, Norges Bank Real Estate Management, came very close to this goal. In 2017, the fund invested $ 823 million in five major properties in Tokyo and included the Japanese capital in a list of nine cities in the US, Britain, France, Germany and Switzerland. Now Norges is trying to expand this list to 11 cities and include Singapore in it.

The Norges Foundation, which decided to increase its investment in real estate from 5 to 7% two years ago, is well known in the international real estate market. In recent years, it participated in a number of large and very high-profile transactions. But its appetite is not yet satisfied. Norges is part of a small group of the world's largest sovereign funds, which are beginning to invade the real estate market more vigorously. For example, the Pension Fund of Japan with assets of 1.5 trillion dollars, gained a solid team of experienced real estate managers. The Qatar Investment Authority and Australian Future Fund have also increased activity in this market.

Experts believe that many billions of dollars invested in real estate allow the funds to maintain activity and energy.

"Sovereign funds are becoming a very significant part of the global investment community," said Richard Bloxham, head of global capital markets at JLL.

Norges debuted on the property market in London eight years ago, buying a 25% stake in Crown Estate's Regent Street. Since then it’s held several major transactions: purchased an office building in Paris, at 9 Vandome Square, for EU one billion in 2016, and in 2015 acquired a stake in a package consisting of 11 properties in New York for $ 1.56 billion 44%.

The fund conducts a conservative strategy in the real estate market. On the other hand, its managers are constantly looking for something new, which will bring more profit to shareholders. So, the Fund began to operate exclusively in the market of office buildings, but now it is trying to diversify its portfolio.

Attention is drawn to the somewhat strange fact: for eight years the Norwegian Sovereign Fund did not work in the Scandinavian real estate market. The Fund administration follows instructions of its owner, the Norwegian Ministry of Finance, which believes that the funds should be invested in assets abroad, and not in the northern kingdom, so as not to "overheat" the Norwegian economy and protect it from fluctuations in oil prices.

The rate for investments in real estate Norges in 2017 was 7.5%. The fund enjoys its monopoly position in the real estate market in the sector of large multimillion-dollar deals of the size of, say, at least three quarters of a billion dollars.

As follows from the accounts of Norges for the second quarter, real estate profit in April-June was 1.9%, i.е. exceeded forecasts of economists.

Some analysts believe that the capitals of new sovereign funds support the bull market on a global scale.