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Norway’s US$1 trillion fund scales back appetite for real estate deals

Norway’s US$1 trillion fund scales back appetite for real estate deals

AFTER a decade snapping up US$25 billion of some of the world’s toniest properties in London, New York, Paris and other global cities, Norway’s US$1 trillion wealth fund is scaling back its appetite for real estate deals.

The fund will instead focus more on investing in listed real estate companies, as a way of cutting costs and simplifying its approach after struggling to find properties to buy amid near record prices. It lowered its target for real estate in its portfolio to between 3 and 5 per cent from 7 per cent, meaning its build up has now essentially come to an end.

While it doesn’t plan to offload the properties it does hold, the loss of such a big buyer will likely be noticed in the biggest real estate markets around the world. The fund owns real estate on Times Square, London’s Regent Street and the Champs Elysees, among other key addresses.

The move marks an abrupt shift for the investor, which was created from Norway’s oil income to safeguard wealth for generations to come. It started its push into real estate in 2011 but its focus on keeping costs low is forcing it to rethink its approach. The fund has also been kept out of the private equity market because of similar concerns over costs and the complexity of managing unlisted investments.

The management should be “cost-effective” and “fairly simple” which means having “an overall property strategy with somewhat greater emphasis on listed holdings,” Egil Matsen, the deputy governor at Norway’s central bank who’s in charge of oversight of the fund, said in an interview on Thursday.

The plan was backed by the Finance Ministry. Siv Jensen, Norway’s finance minister, said in an emailed comment on Friday that she was “pleased” that the bank continually evaluates how the fund invests. “It’s important that the management of our shared savings in the fund is good, open and effective,” she said.