Church Commissioners' newsletter January to March 2005

 

The Church Commissioners manage assets worth over £4 billion on behalf of the Church of England.

They aim for the best possible long term return from a diversified investment portfolio both to meet pension commitments, and to provide the maximum sustainable funding for other purposes including support for the work of bishops, cathedrals and parish ministry.

The portfolio of assets includes stock market investments, and commercial, residential and rural property investments. For more, see http://www.cofe.anglican.org/about/churchcommissioners

Highlights of the quarter

The UK stock market made progress. The Commissioners’ UK equities returned 3.2 per cent for the first quarter, outperforming its benchmark.

Demand for commercial property remained strong, with capital values and rents rising across all sectors.

The sale of the Commissioners’ Millbank office site was finalised in March for £65 million. Staff will move to join colleagues in Church House, Westminster in 2007.

Fund performance

The UK stock market picked up a little during the quarter. The total return from our UK equities holdings was 3.2 per cent, ahead of the 3.0% return from the benchmark. Good stock selection in life assurance, construction and electronics helped. The effect of ethical investment policy exclusions was very slight.

International investments in stocks and shares performed less well. Our global equities returned minus 0.1 per cent against the 0.8 per cent benchmark return. Investors continue to be concerned about economic growth slowing, rising interest rates, high levels of consumer debt and high oil prices.

Commercial property saw continued demand from investors, despite the reintroduction of stamp duty in disadvantaged areas announced in the pre-election budget. Capital values and rents rose. Industrial property was by a short margin the top performing sector during the quarter.

Demand for farmland stayed well ahead of supply – a situation that has led to land prices rising by 25 per cent during 2004. During the quarter, six out of twelve rent reviews on Commissioners’ farms resulted in decreases, four in increases and two were unchanged.

House prices in central London - where much of our residential property is located – rose by 0.6 per cent following a 0.7 per cent decrease in the previous quarter, and now stand 1.0 per cent higher than twelve months ago. Rents rose by 2.3 per cent compared with 0.5 per cent in the preceding quarter.

Transactions

The sale of the Commissioners’ Millbank offices to the House of Lords took place at the end of March – see http://cofe.anglican.org/news/pr3205.html  Of the £65 million sale price, £40 million was paid upfront and the rest will be due in autumn 2007 when staff will vacate the building and move to join colleagues in Church House, Westminster. The sale will allow significant extra funds to be reinvested for the mission of the Church.

We invested £7 million in a central European property fund, £3 million in the Equity Centre Swindon, and bought the freehold of a mixed use property in Bath for £4 million to maximize its subsequent sale value. We sold housing and land for £6 million and received £2 million in loan repayments.

We have recently exchanged contracts to sell properties in Stoke Newington, Maida Vale and Waterloo to social housing providers – see http://cofe.anglican.org/news/pr4105.html. We will report in more detail when the transaction completes.

The UK and global equities fund managers voted on company resolutions our behalf during the quarter, voting in favour of management in 96 per cent of cases, while opposing in 3 per cent and abstaining in 1 per cent of cases.

Plans for 2005

Early this year the Commissioners set their fund management objectives for 2005. We plan to raise net sums of £70 million from residential and £15 million from rural property during the year. We are still exploring options for the sale of the retirement housing loans portfolio to reduce our exposure to the housing market. Such a transaction would not in any way affect retired clergy using the retirement housing scheme.

Other objectives include investing a further £70 million in equities through a European smaller companies mandate, emerging markets and private equity funds. A self-funding switch of £50 million from UK to global equities will help strengthen the fund’s control of risk and access to opportunities.

We plan to invest a further £10 million in commercial property, resulting in a net investment of £50 million over 2004-05 and more concentration on properties that offer higher yields or scope for active management. A number of industrial and retail estate purchases are in hand.

 

Andreas Whittam Smith

First Church Estates Commissioner

25 May 2005

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