Norway Government Pension Fund-Global, Oslo, made its first real estate investment, paying £448 million ($720 million) for a 25% stake in the U.K. Crown Estate's Regent Street properties in London.
The 2.9 trillion Norwegian kroner ($498 billion) fund was given the green light on March 1 by the Norway Finance Ministry, which must approve the fund's investment allocations, to make property investments. Until now, the fund could invest only in stocks and bonds.
Yngve Slyngstad, fund CEO, said the U.K. will continue to be the primary focus for property purchases, although fund officials also will likely purchase properties in France and Germany by the end of 2011.
“Our prime way to go into real estate is joint ventures” like the one with the Crown Estate, and the Norwegian fund will look to enter similar deals with “large, established” real estate managers, Mr. Slyngstad said.
The Regent Street transaction is expected to close by the end of March 2011. The Crown Estate, which owns the property on behalf of the U.K. government, will retain a 75% stake.
Mr. Slyngstad said the fund is awaiting approval to invest in private equity or infrastructure. If granted, it would likely make its first investments in developed countries that have the most transparency and best legal protections. “We will not be looking at emerging markets for some time to come,” he said.
Separately, the fund on Nov. 4 announced its investments returned 7.2% for the quarter ended Sept. 30, outperforming its custom benchmark by 40 basis points.
Returns, plus inflows of 49 billion kroner from the sale of the state's oil reserves, more than outpaced losses because of a strengthening krone vs. the U.S. dollar and U.K. pound sterling.
Equities rose 9.8% in the quarter, outperforming the fund's custom benchmark by 30 basis points. All sectors gained, but financial, industrial and basic materials companies performed best, helped by better-than-expected earnings. Basic material companies, which includes producers of metal, fertilizer and chemicals, rose 18.6%.
Two of the top performers were oil companies (BP PLC and Royal Dutch Shell PLC), while U.S. banks were two of the worst performers ( Wells Fargo & Co. and Bank of America
Corp.) in the quarter, despite the overall strong performance of financial companies.
Bonds returned 3.4%, 50 basis points above the fund's custom benchmark. The fund benefited by declining yields on German, French, U.K., U.S. and Japanese government debt, despite rising yields on bonds issued by peripheral European countries, like Greece and Ireland.
Greek government bonds were removed from the fund's custom benchmark on June 30 after being downgraded below investment grade; however, the fund continued to hold Greek bonds as of Sept. 30.
Bonds also benefited from a 5.1% return for its financial sector holdings. Financial companies around the world breathed a sigh of relief when new capital requirements from the Basel Committee on Banking Supervision, an international group of central banker and supervisory authorities, released Sept. 12 were less strict than expected.
Assets run by external managers rose 6.4% in the quarter to 382 billion kroner.