The Church of England’s £7.9 billion (€9.1 billion) investment fund, which has in the past struggled to reconcile questions of morality and mammon, achieved its strongest returns in more than three decades last year, lifting it into the top ranks of the world’s best-performing endowment funds.
The Church Commissioners annual report discloses total return on assets of 17.1 per cent in 2016, with strong performances from global equities, private equity and timber.
Over 10 and 20 years, the fund returned 8.3 per cent and 9.5 per cent per annum respectively, compared with its target return of 5 per cent per annum above inflation. By contrast, returns from the Yale University endowment, top of the eight-member Ivy League, rose 3.4 per cent in the year to last June, with 10 and 20-year returns at 8.1 per cent and 12.6 per cent per annum respectively.
Amin Rajan, chief executive of the Create Research consultancy, said the Church Commissioners had an enviable record. “Not only have they delivered the target returns, the returns are also in line with what the best-in-class endowments have achieved.”
Industry trends
Armed with a long-term mandate and an in-house team of 35 investment professionals, the Church Commissioners are also known for taking positions counter to industry trends.
Tom Joy, investment director at the Church Commissioners, remains a supporter of active management at a time of massive inflows into passive index-tracking funds. He said as underperformance from active managers reaches new highs, it was not the time to switch from active to passive managers.
“Like many things in markets, we think the success of active management is cyclical,” he said. “The really best managers go through periods of difficulty. Sometimes it is the right thing to stick with managers. We don’t have an obsession with three-year review periods.”
The vast bulk of the Church’s global equities portfolio, which generated returns of 32.9 per cent last year, is actively managed, Mr Joy said. Performance of the portfolio was propelled by sterling’s post-Brexit depreciation and above benchmark results from emerging markets and US smaller companies.
“Being contrarian is often a precursor to being right,” said Mr Rajan. “Active management in general is having a torrid time but there are individual managers who are beating their benchmarks.”
Hedge funds
The Church in 2012 sold its shares in Rupert Murdoch’s media group after concluding it could no longer ethically hold the stock after the phone-hacking scandal. In the same year it boosted its investments in hedge funds at a time of widespread public anger about “corporate excess”.
Lambeth Palace ordered an investigation in 2013 after the Financial Times disclosed the Church’s pension fund had invested in one of the financial backers of Wonga, a payday lender described by the Archbishop of Canterbury as “morally wrong”.
The investment fund supports the work and mission of the Church of England, including responsibilities for bishops, some cathedral costs, clergy pay and pensions.
In 2016, it contributed £231 million or about 15 per cent of the Church’s overall mission and ministry costs.
The Church’s ethical investment policy dictates that all investments should be compatible with Christian values.
– (Copyright The Financial Times Limited 2017)
