Norway's $890 billion sovereign wealth fund, the world's largest, will expand the scope of its investments to target more frontier markets and add more currencies to generate higher returns.
It will add “exposure to different sources of return and seek to exploit time-varying investment opportunities,” Norges Bank Investment Management said in a 2014-2016 strategy report issued Tuesday. NBIM, which oversees the Government Pension Fund Global, Oslo, expects to invest 1% of the fund in real estate in each of the next three years and will raise the number of companies in which it holds more than 5% to 100 by 2016.
In Africa and the Middle East there “are quite a few countries where we're not invested,” Yngve Slyngstad, CEO of the fund, said Tuesday in a telephone interview. “Particularly in Africa, the majority of our investments are in South Africa, although we have some investments in Egypt, Morocco, Kenya.”
Mr. Slyngstad declined to be specific on how much the fund was looking to invest in new frontier markets, adding that it “quite often” tends to be in a position of “around 1%” in new markets when comparing its holdings relative to the size of a market.
“We think we should be as broadly diversified in the global economy as possible, so that means we will continue to add more markets as soon as they satisfy our minimum requirements for market standards,” Mr. Slyngstad said.
The fund, which owns about 1.3% of the world's stocks, has failed to meet a 4% real-return target since it started investing in the late 1990s. Norges Bank Gov. Oeystein Olsen, who oversees the fund, has said it must take on more risk to increase returns. In addition to infrastructure and private equity, he advocates increasing stock holdings to 70% from the current 60% limit.
The fund is allowed to hold 35% in bonds and 5% in real estate. Since being freed to expand into the real estate market in 2011, the asset class makes up about 1% of its total portfolio.
The fund is looking to expand into real estate in Asia and reiterated its interest in “global cities outside Europe and the U.S.” The fund said it is preparing to manage fully owned properties with a more active role in development.
NBIM will also increase the number of employees to about 600 from 370, mostly outside Norway, including 200 for its real estate division, the fund said.