The Wall Street Journal reported today that the Norwegian Government Pension Fund Global plans to invest as much as $11 billion of the country’s oil and gas money into real estate in major American cities.
The Norwegians recognize that prices in major city markets are high, but according to Karsten Kallevig, the sovereign wealth fund’s Chief Investment Officer, they plan to work with partners in the United States with willing to invest 50%, “with a long timetable and deep pockets.” The fund plans to hold assets for decades, “through bubbles, booms, busts and cycles.”
An admirable and solid strategy, but I am not convinced it will work:
- These types of super-low risk strategies often result in undeployed funds, as deals are over and over judged “too risky”; or
- Result in yields so low that U.S. Treasuries would be considered a competitive investment.
- Finding an American investment partner with a “decades long” investment horizon willing to accept low returns is like finding a vegetarian tiger. I can hear the investor pitch now, “Gentlemen, the yields are very low, but on the upside none of us will be around to see them achieved, except maybe Jones over there – he’s an intern.”
There are dozens of solid, diverse and liquid REITs currently yielding 4% to 8% that would love an equity investor like Norway. It is not as sexy as naming a Manhattan office tower Oslo-On-Hudson, but they will get the job done.