Has the Inclusion of Unlisted Real Estate Improved the Risk-Return Trade-off of the Government Pension Fund- Global?

Abstract

This paper examines whether the inclusion of unlisted real estate has improved the risk-return trade-off of the Norwegian Government Pension Fund - Global. Firstly, we did a regression analysis with the fund returns as the dependent variable against the Fama and French market factors and bonds as explanatory variables. In the next part, we calculated the Sharpe ratio and Treynor`s measure to analyze the performance measures of the fund. Lastly, we did a Markowitz optimization analysis to find what has been the optimal allocation towards unlisted real estate in the fund. We found that the risk-return trade-off has been improved after the inclusion of unlisted real estate. In addition, the mean-variance optimizer suggested a higher allocation towards unlisted real estate. Based on these findings, we conclude that the inclusion of unlisted real estate into the GPFG has improved the risk-return trade-off