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Cautious policy mutes Commissioners’ 2019 recovery

05 June 2020

Under-performing equities offset by investments

The cover of the Church Commissioners’ report 2019

The cover of the Church Commissioners’ report 2019

THE total value of the Church Commissioners’ investment fund rose by six per cent to £8.7 billion in 2019 from £8.2 billion the previous year.

The Commissioners’ annual report, published on Thursday of last week, also shows a positive return of ten per cent in 2019, contributing about 15 per cent of the Church of England’s annual running costs. This is a contrast with 2018, when the investment fund fell by £100 million to £8.2 billion — the first time that the fund had decreased since 2011 (News, 24 May 2019).

The combined indices of various countries around the world, including the US and Japan, made a composite benchmark of 20.7 per cent. But the Church of England’s equity portfolio returned only 18.8 per cent, two points below the benchmark. Other asset classes such as private equity and land investments were separate from the benchmark — one of the reasons for this under-performance in equity prices.

This under-performance in 2019 was partially offset by the investment having outperformed in terms of long-term indicators. The fund’s returns in 2019 meant that the yearly average over 30 years was 8.5 per cent p.a., exceeding the target by 0.5 per cent; the 20-year average was just below the target, at 7.6 per cent instead of 7.7 per cent. Returns between 2017 and 2019 also stood at 6.2 per cent, compared with the target of 7.4 per cent.

Furthermore, at the start of 2019, the investment-returns target was changed from the Retail Price Index (RPI) +5 per cent per annum to the Consumer Price Index Including Owner Occupiers’ Housing Costs (CPIH) +4 per cent per annum — a decision made by the trustees because of concerns about a potentially more muted investment environment after more than a decade of rising asset prices.

“Despite under-performance in 2019 over the longer term we have outperformed at a portfolio level and within both UK and global equities where our portfolios are ahead of the respective indices over 3, 5, 10, 20, and 30 years,” the report says.

“Our multi-asset portfolio, which represents around 10.2 per cent, is designed to generate returns which are largely independent of the external environment. It did what we hoped it would in 2018, that is to be up when the equity markets were down. The contrast is that in 2019 those funds have struggled to keep up with the strong run in public equities, although in absolute terms they are up 7.3 per cent, still ahead of our CPIH +4 per cent target.”

The Church Commissioners’ collection of physical assets also showed a mixed picture. Portfolios returned 1.9 per cent in 2019, and investments in timber performed especially strongly; but values fell in residential holdings in the Hyde Park Estate, rural estates, and commercial property.

The First Church Estates Commissioner, Loretta Minghella, said: “We ended the year with the value of our investments at £8.7 billion compared with £8.2 billion at the start. After taking account of the clergy-pension obligations, the balance-sheet value increased from £6.4 billion to £7 billion.

“The Commissioners collectively agreed to the changing of our returns target in 2019. This decision reflects the more muted investment environment expected after more than a decade of rising asset prices. Commissioners believe the new returns target of CPIH+4 per cent is both more realistic and consistent with the targets set by our peers. It is challenging, without encouraging undue risk-taking.”

The Archbishop of Canterbury said: “In 2019, over and above their annual financial contribution, the Church Commissioners also announced their financial support for the delivery of the Church-wide goal of increasing ordinands by 50 per cent and assisting dioceses to meet the costs of the consequent increase in curates — an energetic ambition which will help provide for the Church into the next generation.”

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