The Church of England logoFaithWorshipLife eventsAbout the Church
Information Where to find us
Media Centre Home

Tell us what you think about our website

Church Commissioners' quarterly update to December 2007

The Church Commissioners manage assets worth over £5.3 billion on behalf of the Church of England.

They aim for the best long term return to meet their pension commitments and to provide the maximum sustainable funding for other purposes. These include support for the work of bishops and cathedrals and for parish ministry.

Their assets include stock market investments –over 60% of their fund - and commercial, residential and rural property. For details of their holdings and performance in 2006 see http://www.cofe.anglican.org/about/churchcommissioners/annualreport.

 

Highlights

  • The Commissioners’ fund weathered another difficult quarter at the end of the year. Returns from our equity investments were a little below fund performance averages because of a climate unfavourable to ethical investment policy restrictions, but the longer-term picture is sound.
  • Rural property has performed well, boosted by continuing strong demand.
  • With the UK commercial property market still highly priced, our strategy of looking for suitable overseas property investments continues.

 

Fund performance

 

The FTSE All-Share index, with which we compare the performance of our UK equities, returned -0.3% in the fourth quarter. Our UK equities returned less than this, partly because of the impact of our ethical investment policy, partly because of underperformance from one of the fund management firms. Our global equities holdingsalsoreturned less than the relevant FTSE index’s 0.9% in the quarter.

 

UKgilts achieved modest positive returns and are likely to hold up during the current period of market uncertainty because of continuing demand for bonds.

 

The UK commercial property market weakened in the quarter. During the year, capital values fell despite some growth in rents. New UK investments that will produce an acceptable return are still hard to find in the current market, and our strategy has therefore focused on looking to invest in overseas property funds, whilst exploiting active management opportunities on our existing holdings.

 

Capital values in the prime central London residential property market fell by 1.3% in the quarter while rents rose by 0.8%.

 

UK farmland values climbed further, with rising commodity prices, growing interest in biofuels and strong competition for land among farmers and investors. Our two farm rent reviews in the quarter showed an average annualized increase of 6.6%.

 

Quarterly transactions and investment activity

 

We invested another £50 million in the index-tracking portfolio, managed by Legal & General, that currently makes up the core of our UK equities holdings. After a period of disappointing performance, we ended the contract of one of our UK fund managers and transferred that portfolio to the index-tracking mandate. We also invested £25 million in global equities.

 

We reduced our stake in US smaller companies and emerging markets by a net £20 million, and in commercial and residential property by £5 million each. We raised £15 million from rural land including development sites.

 

Following the difficulties faced by Northern Rock, we tightened our rules for managing cash deposits. Our two £10 million deposits with the company were repaid in full and on time as expected in September and in January this year.

 

Our new currency hedges cost £6 million in the quarter, mainly due to falls in the pound against the US dollar towards the end of the year. This was more than offset by the unrealised gains in value of the underlying assets through sterling weakness.

 

Future plans

 

In 2008 we plan to work towards a target balance of 50:50 between UK and overseas equities (the current balance being 60:40 respectively). We will look to invest further in private equity and in a global ‘tactical asset allocation’ mandate, which will enable its fund manager(s) to respond flexibly to investment opportunities across a broad range of asset classes and locations.

 

On the property side, we will continue to draw down capital from the Hyde Park estate, rural and strategic land portfolios, whilst being alive to potential reinvestment opportunities should the pricing be attractive. We plan two further property fund investments within Asia. A further investment in the world cities/residential market may also be a possibility.

Our Assets Committee will keep these investment plans under regular review as we seek to exploit opportunities in the emerging market environment.

 

Andreas Whittam Smith

 

First Church Estates Commissioner

 

15 February 2008