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Church Commissioners' quarterly newsletter to June 2006

The Church Commissioners manage assets worth over £4.8 billion on behalf of the Church of England.

They aim for the best possible long term return from a diverse investment portfolio, to meet their pension commitments and provide the maximum sustainable funding for other purposes. These include supporting parish ministry and the work of bishops and cathedrals.

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

 

The quarter’s highlights

  • Returns from the Commissioners’ UK and global equities slightly outperformed benchmark figures in the first half of the year.
  • New management arrangements for the global equities portfolio are in place.
  • A buoyant commercial property market helped the Commissioners to make several good sales.
  • The sale of the remaining Octavia Hill Estates completed in the quarter.

Fund performance

The returns from our equities holdings for the second quarter were minus 1.7% for the UK and minus 6.9% for global holdings – in line with the benchmark in both cases. Half-year figures (a positive 6.5% and 0.8% respectively) outperformed their benchmarks. Returns from the oil and mining sectors were strong and pharmaceuticals also picked up.

Commercial property stayed heavily in demand, making it hard to find attractive investment opportunities. Rents rose in all sectors, particularly central London offices. The commercial portfolio’s desktop valuation at the quarter end showed a 12.3% increase in the last six months.

Rural property prices have stayed fairly stable, with values rising by just 3% in the last year. The quarter’s six rent reviews led to two decreases, three increases and a standstill.

Central London housing prices rose by 3.5% in the quarter and are 7.6% higher than a year ago – the highest 12-month increase since 2001. Central London rents were up by 1.4% in the quarter.

Transactions

During the period of market weakness late in the second quarter, we invested a further £100 million in global equities via the conservatively-managed, low-risk core mandates handled by Fidelity and new fund manager AXA Rosenberg (an investment of £50 million each).

Throgmorton StreetWe sold offices at Trinity Court, Manchester for £16 million, industrial estates at Willenhall (£21 million) and Cribbs Causeway, Bristol (£12 million), and bought offices at Throgmorton Street in the City of London for £14 million. Overall we raised a net £40 million from commercial property holdings last quarter. With other plans in the pipeline, our aim of making a net investment of some £50 million in commercial property during 2006 remains on track.

The sale of the final 162 flats of the Octavia Hill London estates, held back pending the tenants’ right to nominate an alternative purchaser, completed for £29 million at the end of June. The purchaser, as for the rest of the estates, was Grainger-GenInvest, a 50/50 partnership between registered social landlord Genesis Housing Group, and residential landlord Grainger Trust plc.

Hyde Park estate sales in the quarter totalled £2.9 million. In line with our strategy of strengthening our stake in the estate’s Connaught Village area, we bought, refurbished and leased two new properties at Connaught Street and Kendal Street.

We raised over £4 million from rural property sales. Looking ahead, we hope to see returns from this portfolio improve as key development sites materialize and we step up our strategy of negotiating for vacant possession on targeted farms.

Governance

Our fund managers continue to vote on company resolutions on our behalf and within agreed guidelines. In respect of UK share holdings they voted with management in 94%, opposed in 3% and abstained in 3% of cases. The equivalent figures for overseas holdings are 94%, 5% and 1%.

We were consulted on voting action over a shareholder resolution on Royal Dutch Shell’s environmental performance and, after considering carefully, abstained.

 

Andreas Whittam Smith

First Church Estates Commissioner

25 August 2006