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Norway’s oil fund increases bet on property markets

Norway’s oil fund increases bet on property markets
Norway’s $830bn oil fund plans to double the size of its property team as the world’s largest sovereign wealth fund seeks to improve performance after posting its worst annual return since 2011.
The oil fund has set itself a target of investing $41.5bn in global property markets. If met, the fund would pour another $16bn into real estate this year.

To meet that target, the fund plans to increase the number of staff in its property operation from 104 to 200 by 2017, according to its latest annual report.

The increase would make the property team more than twice the size of the total staff at Research Affiliates, a California-based asset manager with 90 employees, and nearly double the New Zealand sovereign wealth fund’s entire team of 113 employees.

“Our goal is to build a global, but concentrated, real estate portfolio. The strategy is to invest in a limited number of major cities in key markets while seizing opportunities in the global logistics market,” the fund said in its annual report.

“Net rental income is expected to be relatively stable over time, generating a steady cash flow for the fund.”

The oil fund already doubled the size of the property team from 52 employees at the end of 2014. In 2011 it had just 0.3 per cent of its assets in property. The goal now is 5 per cent.

Michael Maduell, president of the Sovereign Wealth Fund Institute, said the Norwegian oil fund has been “late to the real-estate game” when compared with other state-run funds such as the Abu Dhabi Investment Authority, the Kuwait Investment Authority and the GIC in Singapore.

Nonetheless, other large investors are likely to follow the Norwegian oil fund’s lead and boost their property exposure, according to Nick Holt, Singapore-based head of Asia-Pacific research at Knight Frank, the property company.

He estimated that around two-thirds of the world’s 50 sovereign wealth funds, which collectively oversee $6.5tn of assets, are already invested in property, including those in China, Singapore and Azerbaijan. Those with no or lower investments in property will probably attempt to catch up.

He said: “In Asia, a huge amount of capital is chasing limited stock. This is because prime property offers good rental yields and good potential capital appreciation. It ticks a lot of boxes. With a period of potentially prolonged low interest rates and economic uncertainty, prime property looks like a pretty good hedge.”

Paul Jayasingha, head of real estate manager research at Willis Towers Watson, the world’s largest adviser to institutional investors, agreed sovereign funds “want to put billions [of dollars] to work over time” in global property markets.

He said: “Real estate is an attractive asset class in light of very low bond yields. It provides stable income and upside potential. From a sovereign wealth fund point of view, property is one of the asset classes that can absorb large quantities of money.”

Property was the best-performing asset class for the Norwegian oil fund last year, returning 10 per cent — much higher than its 3.8 per cent return on equities and 0.33 per cent return on bonds.

Overall the fund returned 2.7 per cent in 2015, as volatile markets and the weak performance of several emerging markets tempered better growth in Japanese and European shares, as well as property.

The oil fund, which established Norges Bank Real Estate Management, a separate unit focused on property, in 2014, opened real estate offices in Tokyo and Singapore last year, where it plans to focus its investments in 2016.



published in March 27, 2016

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