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

Tell us what you think about our website

First Commissioner's update

Quarter to 30 September 2008

Current position of the Church Commissioners’ portfolio

The Church Commissioners aim for the best 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 support for the work of bishops and cathedrals and for parish ministry. Their assets include stock market investments and commercial, residential and rural property.

As their annual report  for 2007 shows, the Commissioners outperformed 98% of similar funds over the last 10 years. But they have warned that in the current climate this run of strong performance cannot continue.

The Commissioners, like other funds, have faced extremely difficult market conditions over the last twelve months.  At this stage, it is difficult to predict whether markets might fall further and how long they might take to recover. In such a fluid situation, with markets fluctuating daily, it is not practical to obtain daily valuations of all our assets.

However, the Commissioners’ latest actuarial advice suggests that they will be able to meet their 2008-10 expenditure plans and, because of the way they ‘smooth’ their non-pensions distribution levels, they hope and plan to maintain these in cash terms into 2011-13, even if there are some further falls in the markets.

While no-one can deny the effect that the current economic climate is having on the investment market, the Commissioners  have made a number of significant portfolio changes since the end of 2007, the effect of which has been to reduce materially, for example, the exposure to UK equities. Since 2005, the Commissioners have reduced their exposure to the UK residential market, while maintaining a strong emphasis on property overall unlike other similar funds.

The Commissioners are long-term investors who comply with the ethical investment policy as recommended by the Church of England's Ethical Investment Advisory Group.

Quarter 3 performance

Equities markets made modest gains in July and August but dropped steeply in very volatile trading during September. Smaller UK companies underperformed larger ones and oil & gas and basic materials did least well by sector. As the FTSE All-Share index fell 12.2%, the value of the Commissioners’ UK equities holdings fell 12.9% with the impact of our ethical investment policy accounting for 1.0% of the fall in the quarter.

Overseas, consumer goods and services and the health care sectors were relative outperformers, although the value of the Commissioners’ global equities fell 9.7% compared with a fall of 6.4% in the FTSE All World index. That performance gap has been a concern in the quarter and we are currently in the process of appointing a new fund management company to manage part of our global equities portfolio. These returns do not take into consideration any benefits from currency movements.

Bonds continued to benefit from their safe haven status as investors became more risk averse and showed a positive return of 4.7% in the third quarter.

Commercial property market returns fell by 4.8% and London residential values by 6.4%. The exception once again was rural land, where the Commissioners benefit from their substantial holdings in this sector. However, the strong growth in values earlier this year has slowed and is likely to recede further into 2009 as farming profitability comes under pressure and city incomes decline. The Commissioners property assets are not valued during this quarter but will be at the year end.

Portfolio activity

The Commissioners invested £150 million in late September in a new, environmentally sustainable global equities mandate with Generation Investment Management and £40 million in an unconstrained mandate with Ruffer, investing in bonds and equities but not property.  Rather than funding them from UK equity sales as initially planned, given the fall in equity markets these investments have been funded from cash and Treasury bills.

The Commissioners have also invested an additional £25 million in the global Real Estate Investment Trust (REIT) mandate in August funded from UK equity sales, and have drawn down a net £4 million for global indirect property commitments.

We raised £4.8 million (the second instalment of three) in July from the sale of land at Bersted, Bognor Regis and realized a net £7 million from other property sales and lease extensions.

Policy decisions and ethical investment

Following consultation over the Commissioners’ loan schemes, we have decided that:

•             the scheme to provide dioceses with value linked loans to assist with housing deserted clergy spouses will remain open and the maximum loan level should increase to £150,000.

•             the clergy car loan scheme will remain open so that alternatives can be evaluated in due course. The scheme’s interest rate will be reviewed in March 2009.

The Commissioners reviewed the Ethical Investment Advisory Group’s recommended investment frameworks for climate change and embryonic stem cell research. Recognising that the US-based General Electric was in breach of our ethical investment policy following its acquisition of a defence electronics business, we decided to disinvest from this company.

On share voting, last quarter our UK managers voted with management on 95% of company resolutions, opposed in 3% of cases and abstained in 2% of cases. Their global equities managers voted with management in 83% of cases, opposed in 12% of cases and abstained in 5% of cases.

Looking ahead

In our asset allocation plans for the year ahead, we are proposing to improve further the diversification of the portfolio and to place more emphasis on international investments.

We will continue selective re-investment in Connaught Village, a shopping and business hub within our Hyde Park residential estate, while also realising proceeds from properties elsewhere on the estate.

Over the next 24 months we will work towards increasing our investment in commercial property, focusing on long term opportunities offered by the weaker property market. Over the same period we will explore potential for investment in agricultural land, both here in the UK and overseas in areas offering low land prices and high productivity. We will continue to monitor and evaluate real estate funds that could offer investment opportunities in emerging residential or World City markets.

 

Andreas Whittam Smith

First Church Estates Commissioner

18 November 2008