Norway’s €1bn deal with Irish racing tycoons is biggest for fund

The Norwegian sovereign wealth fund's €1 billion purchase of a Paris office and retail building from Irish horse-racing tycoons John Magnier and JP McManus was the Oslo-based investors' largest property deal last year, according to its annual report.

The 7,510 billion kroner (€845 billion) Norwegian Government Pension Fund Global, the world’s largest sovereign wealth fund, devoted almost half its €2.16 billion of real-estate acquisitions expenditure to the purchase of the Irish investors’ Place Vendome Saint-Honore in the French capital.

Mr Magnier and Mr McManus bought the property in 2007 for €650 million from UK property group Hammerson and French insurer Axa's real-estate management unit. They subsequently spent a considerable sum refurbishing the building.

San Francisco

News of the sale of the property, comprising 26,800sq m (288,472sq ft) of office and retail space, to the Norwegian fund's Norges Bank Real Estate Management arm emerged in late December. The deal was more than twice the size of its second-largest transaction last year, the $453 million (€427.6 million) purchase last August of a 44 per cent in two companies that own two office properties in San Francisco.

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Founded in 1996 to reinvest revenues from Norway’s huge oil industry and shield the economy from fluctuating fuel prices, the fund has received the equivalent of almost €383 billion in contributions from the country’s government. In 2016, the fund returned 6.9 per cent, or €50 billion, bringing total returns since its inception to over €350 billion.

“Four out of five kroner of the return has been generated over the last five years,” the annual report said.

The fund's fifth straight year of gains benefited from a rally in equities during the fourth quarter of 2016, which more that offset a drop in bonds. Equity markets rose after the surprise election of Donald Trump as US president amid optimism tax cuts and deregulation will spur corporate earnings.

First withdrawals

The gains also came after the Norwegian government last year made its first ever withdrawals from the fund. The government withdrew 101 billion kroner last year amid a growing debate over increased spending of oil wealth.

After pushing oil-wealth spending to records, Norway’s Conservative-led government earlier moved in February to tighten a fiscal rule that caps the amount it can use over the national budget each year to 3 per cent of the fund’s value from 4 per cent. The government also proposed to raise the share of equities to 70 per cent from 60 per cent to boost returns that have been lagging long-term targets amid historically low rates.

The fund has also lobbied to be allowed to invest in unlisted infrastructure, but has so far met resistance from the government.

(Additional reporting: Bloomberg.)