Government Pension Fund set to invest in real estate

The Ministry of Finance has adopted rules for real estate investments in the Government Pension Fund Global. "By investing in real estate, we spread the Fund’s risk even more. Real estate is the largest asset class after shares and bonds, and these investments fit well with the Fund’s investment profile", says Minister of Finance Sigbjørn Johnsen.

The Ministry of Finance has previously signalled that up to 5 per cent of the Fund will be invested in real estate and that the Fund’s investments in bonds will be reduced correspondingly. The Ministry of Finance has today adopted rules for how the Fund’s manager Norges Bank will undertake these investments.

The rules allow for unlisted investments in real estate. The real estate portfolio may represent up to 5 per cent of the Fund’s total value. Today, this represents about NOK 130 billion. It will take several years to phase these funds into the real estate market.

The regulations provide overall conditions for Norges Bank’s investments. These must be supplemented with internal rules within Norges Bank.
"In order to ensure that the investments are carried out in accordance with the Ministry’s guidelines, comprehensive reporting requirements have been established", says Minister of Finance Sigbjørn Johnsen.

The return objective for the real estate portfolio will be determined through a global real estate index.

"In order to reduce risk, we have made it a requirement that the investments will be spread over time, over countries and over types of real estate. Investments will principally be made in well developed markets and within traditional types of real estate. Even so, we must be prepared for real estate prices to fluctuate a good deal", says Johnsen.

In the new guidelines for Norges Bank’s work on responsible investment practices and exercise of ownership rights, which are adopted today, the bank will be required to integrate considerations of environmental issues, good corporate governance and social aspects in real estate management. In terms of environmental issues, the bank is directed to give priority to energy efficiency, water consumption and waste handling, among other considerations.

The regulations came into force on 1 March 2010.