THE Church of England Pensions Board has invested £60 million in
hedge funds, despite concerns expressed by the Church Commissioners
about excessive executive pay, and broader concerns about the
sector's contributing to market volatility and profiting from
misfortune.
The Board's annual report for 2011 shows that six per cent of
the "return-seeking pool", worth just under £1 billion, has been
invested in hedge funds managed by BlackRock, Bridgewater, and
Winton. Bridgewater Associates, the world's largest hedge-fund
company by assets under management, was founded by Ray Dalio, whom
Forbes magazine names asthe 88th richest person in the
world, with a net worth of $10 billion. It delivered returns of
about 20 per cent last year. Winton Capital was founded by the
British businessman David Harding, the 92nd richest man in Britain,
according to The Sunday Times, with a personal fortune of
£800 million.
The Pensions Board report states that investing in Global
Tactical Asset Allocation funds (the funds to be managed by the
three firms) has "become a standard investment tool for UK pension
funds in recent years". Such funds allow managers to look across a
broad range of asset classes to find value and, although volatile
(hence the allocation of just six per cent of the fund), are
recommended to investors seeking to diversify their portfolio.
The investment officer at the Pension Board, Pierre Jameson,
told Reuters last week that the funds had an "enviable track
record", and that the Board felt "quite fortunate to be able to
invest in them".
The investment generated a return of 5.9 per cent in 2011,
compared with a loss of 5.2 per cent in UK equities, and 2.4 per
cent overall.
It has prompted questions, however, about the ethics of the
investment. Mr Jameson told The Guardian this week that
the Board had rejected several hedge funds because of ethical
concerns concerning short-selling (whereby an investor borrows an
asset from another investor, and then sells it in the expectation
that the price will fall), market manipulation, and commodity
speculation. He said "clearly there were concerns" about the high
pay of hedge-fund bosses, but that "we feel that if we want to
acheive superior returns we have to pay for it. . .We felt it
[excessive pay] was a fact of life."
Because hedge funds are private companies, investing bodies do
not have a say in their remuneration practices. A spokesman for the
Church of England's Ethical Investment Advisory Group (EIAG) said,
however, that it would "encourage wealthy individuals in the
hedge-fund world to be generous with the wealth with which they
have been blessed".
The Pensions Board adopted the EIAG's ethical guidelines on
investment in hedge funds in 2011. A spokesman for Church House
said on Tuesday that the full guidelines were not in the public
domain, but that they covered issues including short-selling,
trading in basic commodities such as food and oil, trading around
mergers and acquisitions, and trading in the assets of companies in
financial distress. The EIAG spokesman said that, to his knowledge,
they were the first in the investment world to have produced such a
policy. The "general princples" were "to avoid profiting from the
misfortune of others, particuarly the poor and vulnerable".
When asked about the policy on trading in food, he said that
investing bodies should "avoid investment activities that, when
widely practised, may cause the price of food to rise or prices
received by farmers to become damagingly volatile".
In 2010, the United Nations special rapporteur on the right to
food said that financial speculation on food prices explained "a
significant portion of the increases in price and volatility of
essential food commodities" during the global food crisis of
2007-08.