Norway’s Government Pension Fund Global is making its first foray into real estate debt, as its investment manager signed a co-investment programme in the asset class with Axa Real Estate.

Norges Bank Investment Management (NBIM), which manages assets for the NOK4.76trn (€586bn) sovereign wealth fund, formed a joint venture with Axa Real Estate that will target large senior loan investments of up to €600m.

The main geographical focus will be the UK, France and Germany, and most of the investment will be in primary issuances of commercial real estate loans.

Axa Real Estate is acting on behalf of various Axa insurance companies, it said.

NBIM said the joint venture would allow it to achieve two main aims – invest in commercial real estate debt, and invest alongside an experienced team with balance-sheet capacity and a long-term investment horizon.

This is the first time the GPFG has invested in real estate debt, the investment manager said.

Karsten Kallevig, real estate CIO at NBIM, told IPE: “For us, this programme is a natural extension of the unlisted real estate investment we’ve done so far.”

The fund was given the go-ahead by the Norwegian government to invest in real estate back in 2010 and was set up practically to make property investments in May 2011.

Since then, it has built up its real estate exposure to a point where it now accounts for around 1% of the GPFG fund’s total assets.

It has some way to go before it reaches the 5% asset allocation target.

Kallevig said the pension fund had been able to invest in real estate debt as well as real estate equity since 2011, but had so far only made investments on the equity side.

“The real estate debt market looks expensive at the moment relative to the cost of equity, so we started thinking that, at these levels, we’d rather be a lender than a borrower,” he said.

“For us, it’s a very similar strategy we’ve followed on the real estate market so far but a different part of the capital structure,” he said.

He said the starting point when considering this investment programme was that the debt would be held to maturity.

“For both Axa and ourselves – because we are investing from our balance sheets – if things go sideways, we can step in and own the assets,” he said.

Because a bank licence is necessary in most European markets for the origination of debt, NBIM will in some cases need a local bank to carry out the technical origination of property loans to abide by local rules, he said.

He stressed that NBIM was an investor and not a bank, and that this made it most natural for it to have a bank originate the loans.

Looking ahead, Kallevig said further investments in real estate debt were possible, depending on how the investment programme developed.

“If you think about an overall allocation to real estate, the ability to invest in different parts of the capital structure is an attractive capability to have,” he said.

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