Church Commissioners' quarterly update for July - September 2006

 

The Church Commissioners manage assets worth some £5 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 to provide the maximum sustainable funding for other purposes. These include supporting parish ministry and the work of bishops and cathedrals.

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

 

Highlights

UK and global equities made progress during the quarter. The Church Commissioners’ UK equities have slightly outperformed their benchmark in the first nine months of the year.

Commercial property returns in 2006 are expected to be strong for the third consecutive year.

The Commissioners have bought a mixed-use property with long term growth potential in London’s Covent Garden (below).

Fund performance

Returns from the Commissioners’ UK and global equities holdings were respectively 3.5%, in line with the benchmark, and 3.3%. Shares in UK utilities and banks boosted performance, as did technology stocks globally. Their UK equities – the biggest part of the fund – have returned 10.2% over the first nine months of the year.

Commercial property continued to be heavily in demand, making it hard to find attractive investment opportunities. Rents rose in all sectors, with offices performing best.

Rural property prices have risen by 9% in the last year. The quarter’s six rent reviews led to two decreases and three increases, with one unchanged.

Central London residential property prices rose by 4.6% in the quarter and are 12.3% higher than a year ago – the highest 12-month increase for six years. Central London rents were up 3.2% in the quarter.

 

Transactions

The Commissioners earmarked £50 million for the global equities mandate managed by AXA Rosenberg. They invested a further £2 million in Impax Environmental Fund, which invests in companies engaged in sustainable ecology projects, services and waste management.

They invested a net £16.5 million in commercial property. This included the freehold purchase of mixed-use premises in Long Acre (£25.55 million) and a £2 million investment in a Japanese property fund (out of a commitment of up to US$50 million over three years), offset by the sale of Regent Square House in Leamington Spa for £10.35 million. They committed £20 million to the ING Nordic Fund, a property fund investing across the Scandinavian countries, investing a £15 million tranche in October.

The Commissioners realised a net £9 million and £10 million respectively from rural and residential property sales during the quarter, bringing net sales to £16 million and £19 million respectively for the first nine months of the year.

On bishops’ housing, they approved refurbishment plans for Bishopthorpe Palace, York. This, the first major scheme for 30 years, will create an effective home and office base for the Archbishop’s ministry, meet disability access requirements and bring back into good use previously disused areas of the building, as well as bringing the building’s fabric and services back into good order.

 

Accountability and governance

The Commissioners’ UK and global fund managers vote on company resolutions within agreed guidelines. In both instances, third quarter voting accorded with management in 95% of cases and opposed it in 2% (UK) and 5% of cases (global). 3% of UK equities voting represented abstentions.

On the property front, the General Synod’s July debate on the Commissioners’ 2005 annual report gave some attention to the sale of the ‘Octavia Hill’ housing estates in London (see newsletters for April-June 2005 onwards). After discussion, the Synod passed the following motion: “That this Synod request the Church Commissioners and the Assets Committee to (i) consider how they might in the future better seek out and reflect the views of General Synod in advance of investment decisions which might affect the mission and/or reputation of the Church, and (ii) report back to General Synod no later than July 2007.”

The Commissioners are preparing to sell the income stream from their loans to the Pensions Board for clergy retirement housing – see the press release of 4 October at http://cofe.anglican.org/news/pr10206.html for details. The ownership of the properties, and the terms of the loans taken out by the residents with the Pensions Board are not affected by the transaction, but it will reduce the Commissioners’ exposure to the UK housing market while enabling them to continue making loans.

The Commissioners are looking at options for the help they can offer towards enabling the church’s funding of clergy pensions to go forward on a sustainable basis. Decisions will be for Synod next February.

Andreas Whittam Smith

First Church Estates Commissioner

24 November 2006

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