The Government Pension Fund Global has significant exposure to United Kingdom property, with 16% of its NOK221bn (€23.6bn) real estate portfolio in London and 23% in the United Kingdom – over twice its exposure to French property.
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The Norwegian fund, which has been built up from North Sea oil and gas revenues and is managed by a unit of the central bank, swung to a positive return in the second quarter, boosted by gains in its fixed-income portfolio.
“After a period of relatively stable markets at the beginning of the quarter, the British decision to leave the European Union sparked a sharp decline in Europe”.
Shares, which accounted for 59.6 percent of the fund’s portfolio, and fixed income, which represented 37.4 percent, performed better posting returns of 0.7 percent and 2.5 percent respectively.
The return in the quarter trailed the benchmark set by the Finance Ministry by 0.1 percentage point.
“Markets recovered relatively quickly, but with major variations between sectors”.
The world’s biggest sovereign wealth fund noted that “greater uncertainty than usual” in the real estate market, with a number of property firms barring investor withdrawals while they sell off their holdings, made it hard to predict market prices.
“The fund’s fixed-income investment received price gains due to falling interest rates”.
Government withdrawals from the fund totaled 24 billion kroner in the second quarter, up from 21 billion kroner in the first quarter.
The fund, which largely follows global indexes, has been whipsawed over the past year by market turmoil stirred up by concerns over growth in China, a rout in commodities and most recently, the United Kingdom vote to leave the European Union. “The fund has therefore chose to adjust down the estimated value of property investments in the United Kingdom from external valuers by 5 percent”.
“It was pointed out to us that the uncertainty of the assessment of the value of [our British property portfolio] by external assessors has increased”.
“Due to the increased uncertainty, it was made a decision to decrease the value of the property portfolio by 5% in relation to the value our external assessors gave us”.
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“The fund has therefore chose to adjust down the estimated value of the property investments in the United Kingdom from external valuers by 5% as at 30 June”. He did not give the exact values of the British investments.
