Norway’s minister of finance Siv Jensen has announced a significant shakeup of the country’s Government Pension Fund Global which will see up to NOK523bn (€55bn) invested in unlisted property.
The figure represents the total investable according to the higher 7% limit on such investments outlined by the government, as a proportion of the fund’s year-end 2015 total assets worth some NOK7,471bn (€786bn). The 7% limit is up from the previous limit of 5%. That limit was set in 2008, when the fund was first allowed to invest in the property asset class.
As of the end of 2015, the property portfolio accounted for some 3% of the fund, which means that, roughly calculated, the fund will be investing an additional €22bn into property.
However, this additional investment will come with a change to the way the fund’s overall performance is benchmarked. The government has proposed in a White Paper that the fund’s benchmark index only include listed equities and bonds, and that the property investments be held in a separate property portfolio. This is also because returns from property may differ from returns on equities and bonds.
“Under the new regulatory framework, the scope and composition of the fund’s unlisted real estate investments will be decided by Norges Bank. This solution gives a clear division of labour between the Ministry of Finance and the Bank, as well as an overall limit of the fund’s risk,” said Jensen.
The government also announced that it will not allow the fund to invest in unlisted infrastructure, or make changes to the country’s other less well-known sovereign wealth fund the Government Pension Fund Norway, which invests in domestic assets.
A key driver of the decision not to allow investments in unlisted infrastructure is the relatively small market, given the size of the fund, when compared to the size of the listed infrastructure market.
“The GPFG has a financial target, and is not an instrument for promoting state investment in developing countries or renewable energy. There is no financial rationale for permitting infrastructure investments only in these sub-markets. There are already many public schemes to promote investment in developing countries and renewable energy. Moreover, the Storting [Norway’s Parliament] has asked the government to prepare the establishment of a limited company mandated to invest in companies that develop and use green technologies, in partnership with the private sector. The government will return to this question in its revised budget for 2016,” Jensen said.