Church Commissioners’ investment fund falls by £100 million

22 May 2019

The annual return on investment also fell, to 1.8 per cent, its annual report states

STEFANO CAGNONI/CHURCH TIMES

The First Church Estates Commissioner, Loretta Minghella, said that the fall in fund performance was due to “a challenging backdrop” in 2018

The First Church Estates Commissioner, Loretta Minghella, said that the fall in fund performance was due to “a challenging backdrop” in 2018

THE total value of the Church Commissioners’ investment fund fell by £100 million to £8.2 billion in 2018: the first decrease since 2011.

The Commissioners’ annual report, published on Tuesday, states that the annual return on last year’s investment also fell — for the second year running — by more than five per cent to a fraction of their record 17.1 per cent return in 2016.

The report records a return of 1.8 per cent on an £8.2-billion investment fund for 2018 — down from 7.1 per cent on a £8.3-billion investment fund in 2017 (News, 18 May 2018). “It is behind inflation and our longer-term requirements and targets,” the report states.

The Commissioners’ investment fund has increased from £2.4 billion in 1994, with falls reported in the early 2000s, 2008, and 2011.

The First Church Estates Commissioner, Loretta Minghella, said that the fall in fund performance was due to “a challenging backdrop” in 2018, during which the FTSE 100 index dropped by 12.5 per cent.

“Our full-year financial results reflect a difficult year in the markets,” she said on Tuesday. “In 2018, cold winds blew through the equities markets and other asset classes; however, over a 30- and ten-year period, we continue to outperform not only the market, but also our own average target rate over 30 years of 8.2 per cent.”

The Commissioners report an average return in investment of 8.9 per cent a year over 30 years — still down from 9.4 per cent in 2017, and 9.6 per cent in 2016. It was 5.7 per cent ahead of RPI inflation, above their target of five per cent, which has been met for the past five, ten, 20, and 30 years.

Political instability and a weak economy are among the reasons given for the recent downturn. The report explains: “At the end of 2017, many investors were optimistic about 2018, but it proved to be a poor year for investment returns, as monetary tightening and rising political risk led to a rise in risk premiums and a fall in expected economic growth.

“At the end of 2016, and early in 2017, after the EU referendum and President Trump’s election, economists and investors were notably fearful about 2017, yet it turned out to be a very strong year for the global economy and stock markets.”

The risk of a no-deal Brexit; a poor year for equity markets with a total return from the global equity index of –3.8 per cent for sterling investors; and the worst year for the UK market since 2008, with the FTSE All-Share down –9.5 per cent, are also cited.

Ms Minghella continued: “The macro-economic environment continues to be uncertain and volatile, and we anticipate muted returns in the future. Over the next 12 months, we will continue to develop our focus on non-traditional asset classes such as venture capital which are well suited to our long-term horizon as a perpetual endowment.”

The Commissioners record a return of –4.2 for their whole equity portfolio in 2018. Their private equity portfolio returned 23.8 per cent. Their real-assets portfolio, which includes significant property and land investments, returned six per cent. A “modest” return of 1.5 per cent on their fixed-assets portfolio and 8.6 per cent on their multi-assets portfolio was also recorded.

The Commissioners do not invest in weaponry, pornography, tobacco, gambling, non-military firearms, high-interest-rate lending, or the extraction of thermal coal and production of oil from oil sands.

The secretary to the Church Commissioners, Andrew Brown, said that they achieved their highest-ever ratings from the UN-backed Principles for Responsible Investment. “ We also remained at the forefront of investor action on climate change, continuing to support the Transition Pathway Initiative to track corporate alignment with the low-carbon transition, as well as our industry-leading
climate engagement programme.”

In 2018, the Commissioners voted against (or withheld votes) on 15.6 per cent of 17,066 resolutions presented at 1146 company meetings across 55 different markets. The issue on which the Commissioners most commonly voted against management remained executive remuneration.

The carbon footprint of the Commissioners’ investment portfolio at the end of 2018, however, was 344 tonnes of “carbon dioxide equivalent” (tCO2e) per £1 million of corporate revenue — higher than its own benchmark of 275 tCO2e.

The report states: “The most significant challenge for investment decision-making is that global public policy is not aligned with the target of the Paris agreement to restrict the global average temperature rise to well below 2ºC.

“The biggest risk to the Commissioners in the long-term — beyond 2050 — is that the global average temperature rise is not restricted to below 2ºC, causing economic, environmental, and social damage that it will not be possible to avoid via asset allocation or investment selection.”

The Commissioners’ overall charitable expenditure (excluding clergy pensions) increased by more than £20 million to £164.4 million in 2018; decreases in spending on diocesan and ministry support, administration, and the clergy payroll were offset by a £12.2 million increase in spending on mission activities, and £10.5 million increase in Bishops’ ministry and cathedral costs.

Last December, the Commissioners awarded ten “major change projects” in churches and cathedrals a share of a £35-million strategic development fund — their biggest grants to date — in a drive to reverse numerical decline through investment (News, 25 January 2019). Ten other mission projects received a share of £27 million in June last year.

The Commissioners raised £3.4 million from the sale of closed church buildings and land: up from £1.54 million in 2017. Part of this funds the Churches Conservation Trust. “In the past ten years we have transferred £18.2 million from proceeds to diocesan pastoral accounts to support ongoing mission,” the report says.

They are also footing the £23.5-million bill for building the new Lambeth Palace library. Construction began in April. The total costs incurred in 2018 were £7.2 million compared with £2.1 million in 2017.

The Commissioners also contribute 15 per cent to the Church’s running costs.

On the payroll for the Commissioners’ 491 central staff, the median gender pay gap decreased to 24 per cent from 28 per cent last year (this figure had been previously been miscalculated at 41 per cent, and has been republished). The median pay gap was flat at zero per cent for the 31 asset-management staff — the mean pay gap was nine per cent in favour of women.

The report states: “We are committed to improving this further as we focus on reducing the difference in pay between men and women in more highly paid roles and improving the ratio of men to women in the most senior and most junior roles.”

The Commissioners paid £121.2 million in both 2017 and 2018 to meet the cost of clergy pensions earned in service until the end of 1997. They have also provided, in full, future clergy pension payments earned until this date.

“At the end of 2018 this provision was £1542.5 million (2017: £1754.7 million): a reduction of £212.2 million against the previous year.”

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