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Tobacco Megamerger in U.S. Gets Nudge From Spanish IPO: Real M&A 2014-06-29 23:00:01.1 GMT

(For a Real M&A column news alert: {SALT REALMNA <GO>}.)

By Gabi Thesing June 30 (Bloomberg) -- Two American tobacco giants that have been involved in on-and-off merger talks may get some help an ocean away in Spain. Reynolds American Inc. has explored the purchase of Lorillard Inc. for several months with its efforts so far stymied by various complications, people with knowledge of the matter said last month. Antitrust issues are one potential obstacle -- though a move by Imperial Tobacco Group Plc could help alleviate that. Imperial is planning to sell 30 percent of its stock in its Madrid unit, Compania de Distribucion Integral Logista Holdings SA, next month to raise about $800 million for the fourth- largest cigarette maker. That may put Bristol, England-based Imperial in a better position to snap up the assets that regulators would probably force Reynolds and Lorillard to offload in order for any deal to go through. “The Logista IPO may help set the Reynolds-Lorillard deal in motion again,” Philip Gorham, an analyst with Morningstar Inc. in Amsterdam, said in a phone interview. “It gives Imperial a bit of leeway to help finance the brand acquisitions ‘and give its U.S. business scale.’’ Reynolds and Lorillard are the biggest sellers of tobacco in the U.S. after Altria Group Inc., and a combination of the two North Carolina neighbors would put brands such as Reynolds’ Camel and Lorillard’s Newport cigarettes under one roof. A deal would rank as the biggest-ever tobacco merger, creating a company with more than $13 billion in annual sales, according to data compiled by Bloomberg.

‘Formidable Competitor’

‘‘We suspect the aim is to create a company containing the Newport, Camel, Pall Mall, Natural American Spirit and Grizzly brands, which would make a formidable competitor in the U.S.,” Citigroup Inc. analyst Adam Spielman wrote in a May 21 note. The pressure to combine comes amid a need to capture more market share and create synergies as smoking declines worldwide. Global cigarette consumption is poised to drop by 3 percent in the next four years, reflecting a 2.4 percent drop in China and a 4 percent decline in the rest of the world, according to Kenneth Shea, an analyst at Bloomberg Industries. Speculation that a deal is in the works has sent tobacco shares higher, including a 21 percent gain for $32 billion Reynolds this year and a 21 percent rise for Lorillard, giving it a market value of $22 billion.

BAT Power

It’s not just up to Reynolds and Lorillard, though. Reynolds’ largest shareholder, British American Tobacco Plc, has been involved in the merger talks, the people with knowledge of the situation said last month, asking not to be identified discussing private information. BAT, which has a 42 percent stake in Reynolds, is “the power behind the throne,” and the $111 billion London-based company would have to agree to finance part of the deal, Gorham at Morningstar said. Jane Seccombe, a spokeswoman for Winston Salem, North Carolina-based Reynolds, and Robert Bannon, director of investor relations at Greensboro, North Carolina-based Lorillard, said their companies don’t comment on merger speculation. A representative for BAT declined to comment on whether the company supports a Reynolds bid for Lorillard. Reynolds will probably have to at least sell its Kool, Winston and Salem brands, which hold about 5 percent of the U.S. market, to appease regulators, according to Wells Fargo & Co. analyst Bonnie Herzog. It’s likely to already have been “shopping them to an existing manufacturer with a 2 percent to 4 percent share, creating a third viable player,” she wrote in a May 21 report.

Buying Brands

That could be Imperial Tobacco, which Citigroup said has a 3 percent share of the U.S. tobacco market. The company acquired Bowling Green, Kentucky-based Commonwealth Brands in 2007, and currently sells the USA Gold, Sonoma and Fortuna brands in about 20 states. It could cost Imperial between $5 billion and $7 billion to pick up those brands, estimates Erik Bloomquist, an analyst at Berenberg Bank in London. Even though “it would be a stretch to finance it, it would be a deal worth doing for them,” he said in a phone interview.

American Imperial

While a representative for Imperial declined to comment on the speculation and Imperial’s potential role, he said the company has identified the U.S. as one of its growth markets. Earlier this month, Imperial Chief Executive Officer Alison Cooper told analysts and investors at a Deutsche Bank AG conference in Paris that the $43 billion company was building “positive momentum” in that market. “I’ve been very clear on my focus on the U.S. in the last few years,” she said. “Clearly there are options around that business.” Imperial is planning to sell as much as 30 percent of its stake in Logista, a distributor of goods to gas stations and other outlets across Europe that it acquired as part of its 2008 takeover of Altadis SA. The proceeds of about $800 million, based on the mid-point of the IPO price range, will be used to pay debt or reinvest in its business. Imperial is better placed to buy any Reynolds-Lorillard brands that may become available than most of its peers, including Japan Tobacco Inc., which has also been named as a potential buyer, said Chris Wickham, a tobacco analyst at Oriel Securities in London.

Which Brands

“For Imperial it really is a question if it can enhance the profitability of the Commonwealth brands and get some synergies” out of a deal, he said in a phone interview. “The reality is that Imperial is in a better position to extract synergies than someone like Japan Tobacco because it already has a business there.” A spokeswoman from Japan Tobacco International declined to comment when asked if the company had any interest in acquiring assets. While it may make sense for Imperial to buy brands that might be sold after a Reynolds-Lorillard merger, it could depend on which brands end up for sale and the company’s finances. It’s also unclear if a tobacco megadeal will even happen. Wells Fargo’s Herzog is one of the believers. She sees a 90 percent chance that the merger gets done. Benefits of the combination include creating a stronger No. 2 competitor to Altria, greater pricing power and more resources to drive the growth of electronic cigarettes, Herzog has said. While it could be a financial stretch for Imperial to buy any brands that may shake loose from a Reynolds-Lorillard deal, the chance to increase the company’s presence in the U.S. may make a purchase worth the price. “The Reynolds-Lorillard deal, if it happens, could be fortuitous for Imperial if it results in Imperial picking up those brands,” Shea at Bloomberg Industries said in a phone interview. The brands “would provide it with new growth platforms in the U.S.”

For Related News and Information: Imperial Tobacco’s Logista May Get $2.5 Billion Value in IPO NSN N6Y4486VDKHS <GO> Reynolds Said to Weigh Lorillard Purchase Amid On-Off Talks NSN N60NCX6VDKHS <GO> Reynolds’s Shrinking Sales Spark Tobacco Takeover Talk: Real M&A NSN N23CUR6JTSEE <GO> Tobacco deal news: TNI TOB MNA <GO> Bloomberg Industries, tobacco: BI TOBC <GO> Top deal news: DTOP <GO> Real M&A columns: NI REALMNA <GO>

--With assistance from Tara Lachapelle in New York.

To contact the reporter on this story: Gabi Thesing in London at +44-20-7673-2153 or gthesing@bloomberg.net To contact the editors responsible for this story: Beth Williams at +1-212-617-2307 or bewilliams@bloomberg.net; Celeste Perri at +31-20-589-8505 or cperri@bloomberg.net Whitney Kisling

Stock Pickers Have Tough Time in 2014

This year was supposed to be a good one for stock pickers. Things aren't working out as planned.

So far in 2014, more actively managed mutual funds are trailing market benchmarks than in any full year since 2011, according to data from Morningstar.

In some cases, the gap is stark: More than 74% of actively managed funds that invest in shares of big U.S. companies are lagging behind the S&P 500 index, up from 50% last year. It is the second-worst performance on records going back to 2004, according to the fund researcher. The story is similar across many categories of funds investing in small- and midsize stocks.

This development has frustrated many stock pickers who were hopeful at the start of 2014 following years in which many were unable to post returns in excess of market benchmarks.

Unlike funds tethered to an index, stock pickers on actively managed funds aim to beat the broader market by selecting shares they think will outperform. In many instances, fund managers found themselves on the wrong side of this year's unexpected market moves, from the selloff in growth shares to the rally in utilities. They also have been hampered by the lack of big swings in stocks, making it harder to single out market-beating shares.

John Bichelmeyer's $396 million Buffalo Emerging Opportunities fund has fallen 7.2% this year, trailing its benchmark, the Russell 2000 Growth index, which is up 1.6%.

"It's never fun to get your butt kicked," said Mr. Bichelmeyer.

The fund, which buys shares of small companies, has beaten the Russell index in four out of the past five calendar years, including 2013, when it delivered a 61.7% return, nearly double the S&P 500's rise including dividends.

Mr. Bichelmeyer attributes the underperformance this year to a spring tumble in shares of rapidly growing companies and slower-than-expected U.S. economic expansion—factors that hampered other fund managers as well. Mr. Bichelmeyer's fund has bounced back over the past month as many of those shares recovered, but it hasn't been enough to make back the lost ground.

The challenges haven't been confined to mutual funds. Hedge funds that take long and short positions in stocks have returned just 1% this year, well behind the S&P 500's 6.1% gain, according to Goldman Sachs. GS -0.73%

Stock picking is always a risky game, and actively managed funds often lag behind indexes. The proliferation of index funds has made it easier for investors to ride moves in major benchmarks at little cost, and some market observers see actively managed funds as not worth the extra expense.

Still, active managers say 2014 has been particularly frustrating. As the year began, many signs were pointing to a banner performance for those focused on buying and selling individual stocks.

For a start, individual stocks were showing the first signs of becoming unshackled from each other after moving essentially in lock step since the financial crisis.

That gave some investors hope stocks would start trading based on company-specific factors such as earnings or growth or even their attractiveness as a takeover target. That would give stock pickers an edge.

Investors also expected more back-and-forth trading in 2014 after stocks' broad push higher during the second half of 2013, which would give pickers some opportunity to outpace their indexes.

One big reason a stock pickers' market hasn't panned out is that the rally has been a slow, steady grind higher, with few big swings.

The result has been that returns from individual stocks have fallen largely within a small range, a phenomenon known as low dispersion.

"The missing link is dispersion," said Craig Lazzara, senior director of index investment strategy at S&P Dow Jones Indices. "In an environment of low dispersion, the amount by which a winner can win is less."

The difference between the worst and best 10% of stocks in the S&P 500 shrank to 14.4 percentage points in May, its lowest level ever in data going back to 1990, according to research by investment firm Matarin Capital Management.

"Had that market climate materialized it is likely that the dispersion of returns would have been wider," said Jon Hale, director of North American manager research at Morningstar. "Instead, interest rates have fallen, volatility has been low and stocks have moved upward across nearly all sectors."

One prediction did come true: Shares are now increasingly moving on their own merits rather than in response to larger macroeconomic events.

Correlations between individual shares in the S&P 500, measured over a 60-day period, have fallen to 0.31 so far this year, according to research firm Axioma. This month, they dipped to a three-year low of 0.27. A correlation of 1 means all stocks trade in the same direction. In late 2011, as the euro-zone debt crisis intensified and the U.S. credit rating was downgraded, the measure rose above 0.7.

Still, that hasn't been enough for active managers. Other, more fundamental missteps have fed into their market-trailing returns: The economy hasn't accelerated as quickly as many had anticipated, and investors overall have gravitated toward larger stocks, rather than the small stocks that many active pickers tend to buy.

Lew Piantedosi, a portfolio manager on the $150 million Eaton Vance Large-Cap Growth fund, came into the year with a bet on consumer discretionary stocks as part of a broader view of an improving U.S. economy. But the economy contracted 2.9% in the first quarter and the S&P 500 Consumer Discretionary sector index is down 0.4% so far in 2014.

Mr. Piantedosi is sticking by his bet. Most economists blamed the first-quarter drop on the harsh winter and expect growth to rebound.

Meanwhile, Mr. Piantedosi's fund is up 7.1%, lagging behind the S&P 500 by 0.1 percentage point including dividends.

"People have had a hard time outperforming," he said. "Unless you're really nimble and tactical…it's been difficult."

Fund managers say that a rebound in smaller stocks would help active-management returns. Others are looking to the resurgence in mergers and acquisitions this year, which allows portfolio managers to make bets on potential buyout targets.

"This enormous amount of M&A activity has really helped stock pickers get back into the game," said John Rogers, lead manager of the $2.1 billion Ariel Fund.

He said some of his picks, including merger adviser Lazard Ltd. LAZ +0.34% , have benefited from the pickup. "The big pops can be extraordinarily helpful."

Facebook under fire over psychology study

Time capsule: employees should not be naive about what they put on Facebook as anything posted is there for posterity Facebook has angered users after it emerged that a psychology experiment was conducted on hundreds of thousands of the social network's members without their awareness or consent. A week-long study of more than 689,000 Facebook users in 2012 found that those who were exposed to fewer positive stories when they visited the site were more likely to write negative posts, and vice versa.

"The experiment manipulated the extent to which people were exposed to emotional expressions in their news feed," the researchers wrote in their report. "These results indicate that emotions expressed by others on Facebook influence our own emotions, constituting experimental evidence for massive-scale contagion via social networks." The research, which was published earlier this year, was jointly authored by Adam Kramer, who works in Facebook's core data science team, Jamie Guillory a postdoctoral fellow at the University of California in San Francisco, and Jeffrey Hancock, a professor at Cornell University. "Given the massive scale of social networks such as Facebook, even small effects can have large aggregated consequences," the researchers concluded. "Online messages influence our experience of emotions, which may affect a variety of offline behaviours." A report about the research in the New Scientist magazine prompted a backlash this weekend, with most of the complaints centred on the fact that participants in the study did not provide informed consent. "Facebook manipulated the emotions of its users. Unethical? Yes. 1984? Yes,"tweeted Jacob Shiach, founder of Brightwork CoResearch, a research space in Houston, Texas, referencing the George Orwell novel about an oppressive totalitarian government. Susan Fiske, a professor of psychology at Princeton University who edited the study for publication in the Proceedings of the National Academy of Sciences of America, said that she initially had ethical concerns. "I think part of what's disturbing for some people about this particular research is you think of your news feed as something personal," she told The Atlantic magazine. "I had not seen before, personally, something in which the researchers had the co-operation of Facebook to manipulate people." Facebook defended the study, saying "none of the data used was associated with a specific person’s Facebook account" and there is "no unnecessary collection of people’s data" in such initiatives. "We do research to improve our services and to make the content people see on Facebook as relevant and engaging as possible," Facebook said. "A big part of this is understanding how people respond to different types of content, whether it’s positive or negative in tone, news from friends, or information from pages they follow. We carefully consider what research we do and have a strong internal review process." The researchers said that they had detailed just one of many tests conducted by Facebook to improve the "ranking algorithm" of what content is shown in the news feed. This is not the first time that Facebook has received complaints over how it filters content in the news feed, most users' main channel for viewing updates from friends and from brands' fan pages. Advertisers have protested recent moves by Facebook to prioritise individual users' posts over those from their brand pages, which means they have to buy advertisements to promote their material, even to existing customers or "fans" who have "liked" their products. Privacy advocates have frequently complained over the past few years that Facebook has automatically opted users into new features that might share more information than they realised, rather than asking permission upfront. But the latest backlash comes at a time when Facebook has been working to improve its reputation for handling personal information. Last month, it began to offer users a "privacy check-up", through online prompts featuring a blue cartoon dinosaur, and changed the default setting for a user's first post to be seen only by friends, rather than making it open to the public. Marc Andreessen, a Silicon Valley investor who sits on Facebook's board, insisted that what the social network was doing was not unusual. "Helpful hint: whenever you watch TV, read a book, open a newspaper, or talk to another person, someone's manipulating your emotions!" he tweeted. "The entire Facebook system is designed to lead to positive posts and interactions."

Iraq crisis: Isis declares establishment of a sovereign state

Iraqi soldiers take up position on the borders between Anbar and Karbala on Sunday 29 June The Islamic State of Iraq and the Levant, the extremist jihadi group behind an insurgency that has seized a swath of territory in Iraq and Syria, formally declared the establishment of a caliphate on Sunday, even as Iraqi government forces began to push back against it in a campaign centred on retaking the city of Tikrit. A spokesperson for Isis said the organisation’s ruling shura council had decided to establish the caliphate, a sovereign state believed by many muslims to be the official inheritor of the Prophet Mohammed’s temporal and spiritual authority. Abu Bakr al-Baghdadi, Isis’s enigmatic leader, was declared caliph in a move the group said now required all muslims around the world to pledge allegiance to him.

The inflammatory declaration came as Iraqi security forces counterattacked against Isis positions in an effort to alter the balance of power with the Sunni armed groups. Bolstered by air strikes and surveillance aircraft, Iraqi government ground forces backed by Shia militiamen continued their advance from their base in Samarra towards the symbolically important city of Tikrit, claiming on Sunday to have taken control of the city’s university. The forward momentum against Isis and its allies came amid the arrival of a consignment of Russian Sukhoi Su-30k fighter jets to Iraq and increasing co-operation with the US, which has been flying surveillance drones over Iraq airspace for the last several days. Brigadier General Saad Maan, spokesman for the Iraqi armed forces, said US officials were scheduled to meet again with their Iraqi counterparts on Sunday. “The Americans have their air reconnaissance abilities,” he said. “They will give us help on the ground.” In a televised briefing Major General Qassem Atta, an army spokesman, painted a picture of a country at war on multiple fronts. He described fighting in the northern city of Kirkuk, in and around Mosul, the western province of Anbar and the so-called “Baghdad belt” around the capital.

Politicians fear a descent into civil war as sectarian battle lines are drawn following the fall of Mosul to Islamic militant group Isis A victory for Iraqi forces in Tikrit would boost the morale of armed forces reeling from the loss to Isis earlier this month of Mosul, Iraq’s second-largest city. After a lightning advance through much of the country’s north and northwest, the offensive by Isis and its allies appears to have ground to a stalemate, with Iraqi forces successfully holding their ground in the city of Samarra, which hosts a Shia shrine complex in the heart of Sunni territory. Maj Gen Atta claimed the Iraqi flag was now flying over Salahaddin University, a large campus a few kilometres to the north of central Tikrit and located on the road to Baiji, another town under Isis control. “We can confirm that Isis terrorists have started fleeing the Salahaddin area and that their morale is collapsing,” he said. The claim was refuted by media outlets sympathetic to the insurgents. While Iraqi state television aired footage showing the chairman of the provincial council of Tikrit distributing sweets to children, pro-Sunni al-Taghyeer television aired footage showing “revolutionary tribesman” near Saddam Hussein’s former palaces in the city that is his ancestral homeland. The US, Russia and Iran have come to Iraq’s aid, hoping to stop the onslaught by Sunni extremists. Iraqi state television reported that five Sukhoi Su-30k fighter jets had been bought from Russia in a deal worth up to $500m. Officials said a second shipment of Russian jets would arrive shortly. Iraqi officials said their pilots have the ability to fly the sophisticated jets. “We have the pilots already,” said Brig Gen Maan. “They might need some advice or brushing-up training to refresh their memories.” State television said an air attack was planned on Fallujah, a city to the west of the capital that has long been under the control of Isis and allied insurgent groups. “We will fly the planes with the help of our experienced fliers and helpful Russian advisers and we will push them,” air force commander Anwar Hamad Amin said in a television interview. The Russian experts’ arrival will be seen as a rebuke to the US, where concerns in Congress about the sectarian policies and regional alliances of Iraq’s government have stalled aircraft sales to Iraq. Hisham Hashemi, a leading expert on Isis, described air power as the group’s Achilles heel. “The Iraqi air force poses a major problem for them,” he said. The government of Prime Minister Nouri al-Maliki has been pleading with the US for more aircraft to fight Isis, but US officials are concerned that the Shia government would use the weapons against ordinary Sunni and nationalist-minded rebel groups seeking political aims. Already Sunni complain about increased targeting of their community by Iraqi Shia militias and regular security forces. State television on Sunday aired images of six alleged members of Isis who had been detained in Baghdad with explosive equipment. Security officials claimed they were planning attacks on civilians and military personnel. The alleged Isis fighters, their heads covered by black bin bags, confessed to membership of the Sunni militant group on camera.

Iluka could add a cash component to its offer for Kenmare

Iluka Resources, the ASX-listed mineral sands miner, could add a cash component to its offer forKenmare Resources, the UK-listed miner, the Australian Financial Review reported.

Kenmare has rejected an offer of 0.036 new shares for each Kenmare share, which sources claimed Iluka brought directly to Kenmare’s investors. Kenmare claimed that the offer failed to recognise the value of its Moma titanium mine in Mozambique.

According to the report, unnamed sources claimed that Iluka’s board is expected to meet this week to consider lodging a partially cash-funded offer to help get the offer off the ground.

The report cited JPMorgan analyst Mark Busuttil as saying that Iluka likely has the financial capacity to fund an all-cash offer, but that, due to poor prices and low cash generation, any offer is likely to be partly scrip-based. The item also cited Deutsche Bank analyst Chris Terry as saying that Kenmare’s rejection will likely prompt Iluka to improve its terms, possibly by including a cash component.

The paper said that Iluka, which has existing debt facilities of almost AUD 700m (USD 656m), could opt for a 50-50 cash and scrip bid.

The report noted that Iluka investors have supported the company’s efforts to secure quality assets. The paper cited Jason Beddow, managing director at Argo Investments, an Iluka investor, as saying that the group supports Iluka’s efforts to secure assets during the current low point in the mineral sands cycle.

Source Australian Financial Review

Shire: Endgame to an Acquisition

First offer from AbbVie snubbed, but sweeter bids are likely.

It isn't too late to join the party at Shire, which looks to be in play after a tentative approach by AbbVie.

The biopharmaceutical company's London-listed shares (ticker: SHP.United Kingdom) have jumped about 30% in the past couple of weeks since AbbVie's (ABBV) interest was first disclosed, but there could be plenty more upside to come—especially if another bidder emerges. A knockout blow could be 20% to 30% above Friday's closing price of 45.70 British pounds ($77.86) a share.

Shire, which also has American depository receipts listed in New York under the ticker SHPG, may be entering the endgame. This isn't entirely unexpected: A shake-up has been taking place in pharmaceuticals this year, and Shire has long been considered a takeover target. The Stoxx Europe 600 health-care sector is up almost 14% in 2014, outperforming a gain of roughly 4% in the broader index.

Shire so far has spurned AbbVie's £27 billion proposal, which—unsurprisingly—it says fundamentally undervalues the company and its prospects. However, while Allergan (AGN) has thrown plenty of mud in its determined effort to fend off predator Valeant Pharmaceuticals International (VRX.Canada), Shire's defense against AbbVie has been cordial, even half-hearted. It suggests that Shire's board may be ready to talk if AbbVie gets closer to a valuation it considers realistic. An offer above £50 a share could be sufficient to open a dialogue.

AbbVie needs the combination more than Shire. Illinois-based AbbVie would move its domicile to Ireland, where Shire is based, allowing it to cut its tax bill from 22% to 13%, a major incentive. Tax inversion, or reincorporating overseas to benefit from lower taxes, makes European companies particularly attractive to U.S. buyers. At the same time, a deal would diversify AbbVie's portfolio, which currently is too heavily dependent on arthritis medicine Humira, the world's top-selling drug last year. The threat of growing competition for Humira may be a major motivation for AbbVie.

Shire has been quick to make the point that it is under no pressure to do a deal and its prospects as a stand-alone company are strong. Management presented the market with forecasts for sales to grow from under $4.9 billion in 2013 to $10 billion by 2020 based on its current portfolio, which comprises treatments for ADHD and rare diseases. The sales target looks optimistic, even exaggerated, but Shire is spreading a message that the figure doesn't include its most recent acquisitions or future purchases.

By emphasizing the company's potential, Shire is simply trying to extract the best possible price. AbbVie's indicative proposal of £46.26 per share in cash and stock values Shire at about 24 times forecast 2014 earnings of £1.91 per share. That looks cheap given Shire's double-digit compound annual growth rate in sales through 2018, a 35% operating margin that is expanding, and robust earnings.

The danger for AbbVie is that other bidders now could come forward. Allergan and AstraZeneca (AZN.United Kingdom), a target of a failed bid from Pfizer (PFE), are candidates as they try to protect themselves from current or future unwanted advances.

Ori Hershkowitz, a portfolio manager at Sphera Funds Management in Tel Aviv, believes Pfizer also could enter the fray. He invested 4% of his $500 million Sphera Global Healthcare fund in Shire a few months ago after Pfizer was rebuffed by AstraZeneca. He sees greater synergies between Shire and Pfizer than with AbbVie, but he isn't too concerned about a deal. "I would be happy to own Shire as a stand-alone company," he says. "It is a great company."

Bank of America Merrill Lynch estimates the value of Shire to AbbVie at between £50 and £62 per share, based on its long-range plans, tax, and synergy benefits. Most analysts see Shire's takeout price above £55 a share.

The clock is ticking for AbbVie. U.K. regulators have imposed a July 18 deadline for the company to make a bid for Shire or walk away. Rivals may be racing against time to beat AbbVie to the prize. Investors can't afford to ponder this situation for too long.

NORWAY'S $887 BILLION state pension fund plans to boost its investment in real estate and in frontier markets.

Norges Bank Investment Management, which administers the fund on the government's behalf, intends to increase its real estate exposure by 1% each year through 2016. That would take its property holdings to 5% of its portfolio, up from just 1.2% last year. Its concentration in Europe will be on London and Paris, while in the U.S. it will be on New York, Washington, Boston, and San Francisco.

Its holding of equities will fall to 60% in 2016 from 61.1%, and its fixed-income portfolio will shrink to 35% from 37.7%. The fund owns a 2.5% share of Europe's listed companies, and its top holdings include Nestle (NESN.Switzerland), Royal Dutch Shell (RDSB.United Kingdom), and Novartis (NOVN.Switzerland).