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
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
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
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
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
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
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."