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Church Commissioners' quarterly newsletter to December 2005

The Church Commissioners manage stock market and property assets currently worth over £4.5 billion to provide support for the Church of England’s work in parishes, the ministry of bishops and cathedrals, and the pensions of clergy. This newsletter gives an update on the fund’s performance and asset management over the fourth quarter of 2005.

For more information see http://www.cofe.anglican.org/about/churchcommissioners

Highlights

  • Stock markets performed well in the final quarter, rounding off the best year since 1999.
  • The Commissioners’ UK and global portfolios respectively returned 4.3 per cent and 6.9 per cent in the quarter, outperforming their benchmarks.
  • Demand for commercial property was once again high and returns in the quarter were strong despite only modest rental growth.

Returns

UK and global equities make up more than half of the Commissioners’ fund. These holdings returned 4.3% and 6.9% respectively for the fourth quarter of 2005, ahead of their benchmarks in both cases. Upwards progress in UK equities has continued, reflecting rising profits and mergers and acquisitions activity.

Property is nearly one third of the fund.  Retail performed best in the quarter. However, the difference between the quarterly returns from the main commercial property sectors have become smaller.

Farmland values fell slightly in the second half of the year, retreating from a record high at the end of 2004. Rent reviews on our farms during the fourth quarter resulted in an average increase of 2.5%.

Central London house prices rose by 1.1% in the quarter and rents by 1%. Rents grew by 4.1% over 2005.

Transactions

The Commissioners made further progress with their plans to extend their holdings in global equities, rebalance their commercial property for better long term prospects, and cut down the fund’s weighting in housing.

In the fourth quarter we switched £50 million from UK to global equities. Half of this sum was transferred to one of our existing global equities managers, Fidelity, and the other half to new fund manager Montanaro, specialising in smaller European companies.

Following review, we revised the management of our core UK equities by setting up an index-tracking mandate, managed by Legal & General, that complies with our ethical investment policies. The change aims for more consistent and cost-effective performance.

On the property front, during the quarter we bought the Mannings Heath retail park in Poole for £14.5 million and an office in Leeds (£8.4 million), and sold our stake in Croydon’s Whitgift shopping centre (£15.6 million) and offices in Edinburgh (£7.5 million).

We bought a residential property in Connaught Square, London as part of our strategy to add value to the Hyde Park estate holding. We raised a net £4 million and £1 million respectively from the rural and residential portfolios in the quarter and received £2 million in value-linked housing loan repayments from dioceses and the Pensions Board.

In the light of the Commissioners’ new suitability and management guidelines for diocesan bishops’ houses, we took the decision to go ahead with Worcester diocese to find a new house for the diocesan bishop.

Towards the end of 2005 we entered into discussions with several organisations with a view to selling the freeholds of the remainder of the Octavia Hill estates in London. We identified a purchaser earlier this month and have now agreed detailed terms. The sale will take place later this year.

Governance

The UK and global equities fund managers voted on company resolutions on our behalf. During the quarter, UK managers voted in favour of management in 98% of cases, opposed in 1% and abstained in 1%. Global managers voted in favour in 93% and against in 7% of cases.

 

Andreas Whittam Smith

First Church Estates Commissioner

23 February 2006