Norwegian pension fund begins real-estate shake-up
By the Norwegian Government Pension Fund’s own admission, its peers have adapted to changes in the real estate investment market much better than it has. So now it is shaking things up (Carina Johansen/Bloomberg)
The $2tn Norwegian Government Pension Fund Global has closed its real estate office in Paris, bringing its European real estate team together in one location in London.
What does this mean?
Well, it means the fund is acknowledging some of the flaws of its previous approach towards investing in real estate.
This approach, by the fund’s own admission, was honed in 2010 - before the Covid-19 pandemic led to the growth of remote working, and much earlier in the e-commerce boom and as a result it has been left in the dust.
Therefore a change is needed.
As the fund says: “Our peers have successfully adapted to these changes, with increased allocations to emerging sectors.
“To enable the transition to more operational sectors, the industry has moved towards more indirect structures. Our peers are increasingly combining direct investments with platforms and funds to access specialised expertise and operational capacity more efficiently.”
In practice this means the fund will cease distinguishing between listed and unlisted real estate, since it believes that over time the return difference fades away.
It will also increasingly invest through funds and through real estate operating companies.
More practically, it means the fund will diversify its real estate holdings as much as possible across sectors (ie office space, retail, logistics and “living” - we presume this is…houses?).
So on the closure of its Paris office (which follows shortly after the closure of its Tokyo office), the fund says: “With this new direction, we believe a Europe team working together in a single location will be most effective in delivering returns.”
