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GPFG - Real estate management

Letter sent to the Ministry of Finance, 07 February 2019

7 February 2019


Under the management mandate for the Government Pension Fund Global (GPFG), Norges Bank may invest up to 7 percent of the GPFG in unlisted real estate. Unlisted real estate is not included in the benchmark index as defined by the Ministry of Finance, and Norges Bank finances such investments by selling equities and bonds.

At year-end 2018, the Bank had invested around 3 percent of the GPFG in unlisted real estate. In addition, the Bank had established a portfolio of listed real estate investments. All together, these listed and unlisted investments accounted for around 4 percent of the GPFG. Unlisted real estate investments are managed by a separate operational unit (Norges Bank Real Estate Management - NBREM). Listed real estate investments are managed together with the other listed equity investments. 

NBREM has its own chief executive officer (CEO), appointed by the Executive Board, and its own leader group. CEO NBREM reports to CEO NBIM. CEO NBIM has overarching responsibility for the GPFG, including for the composition of the portfolio and financing of real estate investments.

Strategy plan 2020-2022

According to Norges Bank’s management mandate for the GPFG, the Bank’s Executive Board shall have a strategy plan for the execution of its management assignment. The plan shall be updated regularly and in the event of significant changes in investment management.

The Executive Board discussed the experience with investments in unlisted real estate at a seminar on 14 August 2018. On 19 September 2018, the Executive Board decided to stabilise the allocation to unlisted real estate until year-end 2019. This change is referred to in Norges Bank’s letter to the Ministry of Finance of 5 November 2018 concerning the management fee for 2019.  At the meeting on 19 September 2018, it was also decided to expedite the work on a new real estate investment strategy for 2020-2022. In its work on the real estate strategy, the Executive Board put emphasis on the following:

  • The mandate from the Ministry of Finance for management of the GPFG has been amended so that from 2017 it no longer contains a specific allocation to real estate.
  • In recent years, the listed real estate market has grown rapidly, and the restrictions on the portion of the voting share in listed real estate companies that GFPG may own have been changed so that the GPFG can hold larger stakes. This may facilitate better diversification of the real estate portfolio across real estate sectors.
  • The investments in listed and unlisted real estate should be viewed as alternative ways of achieving the desired exposure to real estate.
  • Recent years’ experience with unlisted real estate investments shows that such investments may be complex and resource-intensive.
  • The management of the fund should be characterised by cost-efficiency and transparency.

At its seminar on 22 January 2019, the Executive Board discussed main points of the new real estate strategy. The discussion was based on extensive analytical material, including return and risk estimates for the GPFG under different real estate investment strategies. Among other things, the analyses showed that a real estate portfolio can provide the GPFG with a better trade-off between absolute return and risk. Real estate is not included in the Ministry of Finance’s benchmark index. An allocation to real estate will however draw on the tracking error limit. 

At its meeting on 6 February 2019, the Board decided that the new real estate strategy should include the following main points:

  • The aim is a real estate portfolio on the order of 3–5 percent.
  • The real estate portfolio shall comprise both listed and unlisted real estate investments. There is no specific limit on the proportion of listed real estate investments to total real estate investments.
  • The real estate portfolio should be broadly diversified across real estate sectors.
  • Strategy should be simple, with emphasis on cost-efficiency and investments that require limited resources. Investments shall normally not be made in development projects and should be confined to a few strategic cities. There should be sufficient flexibility to take advantage of special investment opportunities that may arise in the unlisted real estate market.

Organisation of real estate management

With a limited portfolio of unlisted real estate and a desire to integrate listed and unlisted real estate, the Executive Board finds that it is no longer appropriate to organise the management of unlisted real estate separately. The Executive Board has therefore decided to discontinue NBREM as a separate organisational unit. The real estate organisation in NBREM will therefore be integrated with NBIM in an appropriate manner. According to plan, a new organisational model for NBIM will come into effect from 1 April 2019.

The change in the organisation of real estate investments will have consequences for personnel, among other things in the form of changes in lines of reporting, job content and level of positions. The organisational changes will be handled according to the rules that apply for such processes.

The Executive Board has accordingly amended the job description and the investment mandate of the CEO of NBIM with effect from 1 April 2019. Amended governance documents are attached.

Real estate investments in the GPFG

Real estate investments will continue to be an important part of the Bank’s investment strategy for the GPFG, and NBIM will be a large real estate investor in the coming years. The real estate portfolio can improve diversification of the GPFG’s overall investments over time. Norges Bank will continue its work to develop performance measurement and reporting methods for real estate investments through the next strategy period.


Øystein Olsen                                                Birger Vikøren

Read the letter