The Impact of Increasing Real Estate Allocation on NBIM’s Portfolio : Risk, Return and Diversification Potential
Vorobeva, Elizaveta (2025)
2025
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2025111828465
https://urn.fi/URN:NBN:fi:amk-2025111828465
Tiivistelmä
The objective of this thesis is to examine whether it is reasonable to increase the share of real estate in the portfolio of Norges Bank Investment Management (NBIM), one of the world’s largest sovereign wealth funds, as real estate currently remains at a relatively small share of 1,9% compared to equities and fixed income. Analysing the factors behind this allocation and the role of real estate in NBIM’s current portfolio provides an important background and understanding of this share at the moment, as well as helps to assess its increased allocation potential impact on the overall portfolio performance in the future.
To understand the possible effects of an increased allocation, the analysis considers that institutional investors typically hold between 5% and 10% of their portfolios in real estate. Therefore, the study explores alternative asset allocations discussed by NBIM to assess their impact on the risk-return balance and diversification potential of the possible fund’s portfolios. Moreover, the commercial, retail, residential, and industrial real estate sectors are influenced by structural shifts such as the growth of e-commerce, the spread of remote and hybrid work, demographic changes, and the increasing importance of ESG and sustainability requirements. These trends affect both the performance of the real estate sector and NBIM’s long-term allocation strategy. Hence, this thesis examines the specific risks linked to NBIM’s real estate holdings, focusing on how structural shifts influence different sectors and, consequently, the overall portfolio return under varying market conditions.
These dynamics are evaluated through supportive calculations and scenario analyses, following the approach and data described and published by NBIM. Therefore, these methods help to analyse whether an increased allocation could strengthen the fund’s portfolio through diversification benefits and improved risk-adjusted returns, or whether the vulnerabilities of the asset class may limit its diversification role within NBIM’s overall investment strategy.
To understand the possible effects of an increased allocation, the analysis considers that institutional investors typically hold between 5% and 10% of their portfolios in real estate. Therefore, the study explores alternative asset allocations discussed by NBIM to assess their impact on the risk-return balance and diversification potential of the possible fund’s portfolios. Moreover, the commercial, retail, residential, and industrial real estate sectors are influenced by structural shifts such as the growth of e-commerce, the spread of remote and hybrid work, demographic changes, and the increasing importance of ESG and sustainability requirements. These trends affect both the performance of the real estate sector and NBIM’s long-term allocation strategy. Hence, this thesis examines the specific risks linked to NBIM’s real estate holdings, focusing on how structural shifts influence different sectors and, consequently, the overall portfolio return under varying market conditions.
These dynamics are evaluated through supportive calculations and scenario analyses, following the approach and data described and published by NBIM. Therefore, these methods help to analyse whether an increased allocation could strengthen the fund’s portfolio through diversification benefits and improved risk-adjusted returns, or whether the vulnerabilities of the asset class may limit its diversification role within NBIM’s overall investment strategy.