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Church Commissioners

13 July 2012

THE Church Commissioners' annual report was the subject of a presentation on Saturday afternoon.

The First Church Estates Commissioner, Andreas Whittam Smith, said that it was "rather impossible not to be gloomy at the moment" regarding the global economic picture. How, in these circumstances, should the £5.2-billion fund be managed in a prudent way? Furthermore, the Church was facing its own "crisis" in the shape of demographic changes.

With regard to investment performance, last year the Commissioners had managed to achieve a return of 2.9 per cent, a "pretty thin" return. This year it had increased thus far to four per cent.

He set out eight "basic rules of running a portfolio". First, it was important to "go where the growth is", investing in countries and regions that were growing, mainly in Asia. This meant not only buying shares and securities, but making property investments, such as in a newly constructed office block in Singapore, and multinationals such as HSBC.

The second rule was to nurture the Church's own safe-haven assets in this country "for which there is strong international demand". This included London residential property such as the Hyde Park estate, and agricultural estates, which remained "extremely extensive, and benefit from strong commodity prices".

The third rule was to supply liquidity. It was possible to participate in helping "good but highly indebted countries" to restructure balance sheets; £150 million had been invested in these opportunities. The fourth rule was to back good investment-managers.

The fifth rule was to diversify; and £200 million had been invested in timber assets, mainly in the United States. A 14,000-acre forest in Scotland had also been purchased.

The sixth rule was to "keep a lot of cash": £700 million at the end of 2011, down to £600 million currently, because of investments in timber.

The seventh rule was to "look our mistakes full in the face". In 2011, two "bad errors of omission" had been made. The Commissioners had not invested in British government securities, which "rose strongly", or in gold. "We can't afford to go on missing things."

Finally, it was important to attend to governance. It was "very important that we act swiftly and decisively", sometimes making a decision in just 48 hours, "but without softening checks and balances".

Mr Whittam Smith went on to talk about demographics. The first projection was "gloomy". If it was assumed that recent trends of decline in the younger generation continued, the number of worshippers would fall from 1.2 million in 2007, to half a million in 2030, and 125,000 in 2057.

Even with the assumption that in this period there would be an increase in younger adult members of three per cent per annum, numbers overall would continue to decline, because the drop-off in older members was superior to the growth in younger members. It would not be until 2040 that a net increase in church numbers would appear.

To address this issue, several things had been done. Dioceses and cathedrals were being asked to report back on the outcome of funds they received from the Commissioners ("not all respond to this request"). Second, research was under way to look at where the Church was growing and where it was not, "to be clearer what are the factors associated with growing churches".

An encouraging statistic was that while three-fifths of churches were declining, two-fifths were growing.

Finally, a special fund had been launched to co-finance "valuable mission initiatives confined to parishes which are all heavily deprived areas, according to national statistics".

Mr Whittam Smith spoke of three lessons that he had taken away from visits to various areas, with regard to growth: no territory was too difficult; churchmanship was irrelevant to growth; the only thing that mattered really was leadership.

Answering questions, Mr Whittam Smith said that the revelation that Barclays Bank manipulated interest rates had been a "shock". Other big banks had been "doing the same thing, but we don't know the details yet".

He went on: "It's not bad banking we're dealing with. . . It's bad business we're dealing with. I think it's worse than I've seen in my career. . . I haven't seen it like this before. I think this poses questions for us and for ethical investment, and we're certainly rapidly going to do some work on banks."

Mr Whittam Smith said that he did not think that "regulation will make much difference", because the banking industry had been "regulated for two centuries". "We're dealing with cultural deficiencies. If there's anybody who should think about these sorts of deficiencies, it's the Church."

He said that the head of Barclays' remuneration committee had come to see the Commissioners last year, to explain "the criteria they use in deciding on their enormously high rewards".

Church investors had power to influence company boards, though their influence "will only go so far. It won't turn the wicked into the virtuous, but it will edge up certain boards into better behaviour than would otherwise have been the case."

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