NORWAY - The Government Pension Fund - Global is to make real estate a separate asset class and expand its benchmark portfolio to include more emerging markets, finance minister Kristin Halvorsen has revealed.
"Investing a portion of the fund in real estate is expected to improve risk diversification and enhance returns," said Halvorsen.
"While real estate investments may commence in 2008, creating a diversified and significant real estate portfolio will take many years, taking into account the desire to minimise transaction costs and market impact."
The Ministry of Finance also said it would also expand the fund's benchmark portfolio for equities by including all the advanced and secondary emerging stock markets, as defined by FTSE.
This means the current benchmark will be expanded to include the stock markets in Argentina, Chile, China, Colombia, the Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Morocco, Pakistan, Peru, Poland, the Philippines, Russia, Thailand and Turkey. As a result, emerging markets will represent a total of 10% of the benchmark portfolio for equities, up from 5%.
"Including more emerging markets in the benchmark is expected to improve risk diversification, and the benchmark portfolio will better reflect developments in global stock markets," Halvorsen said. She added the change to the benchmark would be phased in over time.
In an annual white paper report to parliament on the management of the Government Pension Fund, which includes the Pension Fund - Global and Pension Fund - Norway, Halvorsen revealed high petroleum revenues and moderate financial returns contributed to another significant increase in the fund to NOK2,136bn (US$421bn).
The Pension Fund - Global, which is managed by Norges Bank, registered a 4.3% return in 2007 and stood at NOK2,019bn at the end of the year. Since 1998, the average annual nominal return has totalled 6%.
The Pension Fund - Norway, which is managed by Folketrygdfondet, reported a 9.8% return last year, compared to the average return since 1998 of 7.7%.
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