Sunday, 21 May 2017

Church Commissioners publish results for 2016

The Church Commissioners for England announced today publication of their 2016 financial results and annual report. Their press release is copied below the fold.

You can download the 2016 report here. There are also reports for earlier years and an annual review focussing on some of the projects they have funded and supported over the past 12 months.

Press reports

Simon Goodley The Guardian Church of England made stunning 17% return on investments in 2016

BBC News Church of England fund sees ‘stellar’ returns

John Plender Financial Times Church of England delivers divine returns

Peter Smith Financial Times Church of England fund becomes top world performer

Church Commissioners for England announce total return of 17.1% on investments for 2016
21 May 2017
The Church Commissioners for England announced today publication of their 2016 financial results and annual report.

The Church Commissioners’ total return on its investments in 2016 was 17.1%, compared with the previous year’s return of 8.2%. Over the past 30 years the fund has achieved an average return of 9.6% per annum.

In 2016 disbursements by the Commissioners totalled £230.7 million, accounting for approximately 15% of the Church’s overall mission and ministry costs. This represents an increase in church expenditure of 5.6% from the previous year.

The Church Commissioners’ funding is targeted towards mission opportunities and those areas which are most in need, as well as meeting ongoing responsibilities for bishops, cathedrals and clergy pensions.

First Church Estates Commissioner Sir Andreas Whittam Smith congratulated the fund on exceeding its investment target of the rate of inflation plus five percentage points.

“We were well ahead of our return target in 2016. In 2016, the fund returned 17.1% whereas inflation plus five percentage points was 7.5%.

“Contributing to this stellar outturn was a strong showing by global equities (+32.9%), partly reflecting the depreciation of sterling. Equally helpful were our interests in private credit strategies (+33.1%), private equity (+26.1%) and timberland (+24.3%). The combined property portfolios delivered a creditable 11.6% in a relatively weak market environment.

“Consistency has truly been a guiding principle for the fund. Our historic performance over a 30 year period shows annual growth of 9.6% per annum, despite periods of turbulence in the financial markets and our own portfolio, an average of 6.0% per annum ahead of inflation.”

Andrew Brown, Secretary and Chief Executive of the Church Commissioners, said:

“In 2016 we contributed £230.7m to the mission of the Church of England. This represents an increase on the previous year of 5.6%.

“While this is only around 15% of the Church’s overall income - most funding comes from the extraordinary generosity of parishioners - we are delighted to be able to play our part.

“Whether funding city centre churches, community projects in low income areas or research programmes to examine how the church can grow, these returns make a tangible difference to the lives of thousands across the country”

Investment highlights

Notable performance was delivered in global equities, timber and indirect property.

Exposure in the equities portfolio was reduced by 17.3%, divesting £500m and reinvesting to rebalance the portfolio.

The private equity portfolio, which invests in unlisted companies, achieved a total return of 26.1% in 2016.

The fixed interest portfolio including investments in global high yield bonds, emerging market debt and structured credit, returned 16.4% in 2016 as credit markets rallied due to continued economic growth and improvements in corporate earnings.

The private credit portfolio, started in 2012 increased allocations in 2016 generating a combined return of 30.9% in 2016.

The property portfolio delivered a strong performance in 2016, providing a total return of 11.6%. This includes a high-quality portfolio in global timberland markets, built over the last five years totalling over £360m.

The Commissioners’ forestry estate covers 120,000 acres in the UK, the US and Australia with the timberland and forestry portfolio delivering a return of 24.3%.

Responsible Investment, Impact Investing and Engagement

In 2016 the Commissioners made their first qualifying impact investments including a $40m commitment to Equilibrium Capital Management’s Waste Water Opportunity Fund which develops anaerobic digestions facilities. Equilibrium estimate that the investment will prevent the emission of over 500,000 tonnes of carbon dioxide equivalent annually.

Also during 2016 the Church Commissioners established an Engagement department jointly with the Church of England Pensions Board. The team focussed on three areas of intervention at AGMs: executive remuneration, climate change and board diversity.

During 2016, the Commissioners continued to vote against the majority of remuneration reports and publicly called upon company remuneration committees to better exercise their judgement on executive pay.

On climate change the Commissioners were instrumental in filing climate disclosure resolutions at Anglo American, Glencore and RioTinto. These were supported by the Boards of the companies and received overwhelming shareholder support.

A shareholder resolution was also jointly filed with the New York State Common Retirement Fund at ExxonMobil, seeking further disclosure on climate change.

During 2016, the Commissioners voted ‘against’ the Chairs of Nomination Committees in instances when female representation was below 25% of the board.

The Transition Pathway Initiative, an asset owner led initiative supported by asset owners and managers with over £2trillion of assets was spearheaded by the Church of England’s national investing bodies including the Church Commissioners for England, in partnership with the UK Environment Agency Pension Fund. Formed in 2016 and launched earlier this year, the initiative assesses how companies are preparing for the transition to a low carbon economy through a public and transparent online tool.


Notes to Editors

The annual report and annual review can be downloaded here.

About the Church Commissioners for England

The Church Commissioners manage investable assets of some £7.9bn, mainly held in a diversified portfolio including equities, real estate and alternative investment strategies. The Commissioners’ work today supports the Church of England as a Christian presence in every community.

The annual objectives of the Church Commissioners include:

A return on investments of RPI +5%

Supporting ministry costs in dioceses with fewer resources

Providing funds to support mission activities

Paying for bishops’ ministry and some cathedral costs

Administering the legal framework for pastoral reorganisation and settling the future of closed church buildings

Paying clergy pensions for service prior to 1998

Running the national payroll for serving and retired clergy

Accounting change

Under the Pensions Measure 1997 the Commissioners are responsible for paying the pensions for clergy service prior to 1998. In prior years it disclosed the liability in a note to the accounts, but did not bring that liability onto the face of the Balance Sheet as it was following accounting guidance applicable to pension schemes (who are not required to recognise such liabilities). This approach was taken due to the significance of pension activities to the Commissioners as a whole. In 2016 this approach was reviewed and, in light of the Commissioners’ broader charitable activities, management determined that a provision for the pension liability should now be recognised in the financial statements through a prior period adjustment. This accounting adjustment has no impact on the Commissioners’ long term distribution plans.

At the end of 2016 the liability is estimated by independent actuaries at £1.8bn (end 2015 - £1.7bn). With £7.9bn of investable assets this results in a value of the fund (net of the pension provision) of £6.1bn (2015 - £5.3bn).

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Of course, the Commissioners are to be congratulated for having done so very well; this is a great tribute to the acuity and insight of Sir Andreas Whittam Smith and his team (and also Sir Michael Colman who did so much to restore the asset base after the turbulence of c. 1988-94).

However, although I am not a fund manager, if I were and my major liability (the provision of money for the payment of clergy pensions) was decreasing YOY, I imagine that my performance would also increase YOY, especially in a market thoroughly goosed by interminable QE.

The flip side of this coin is that as the fortunes of the Commissioners wax those of the dioceses wane; every year their obligations become ever more severe (and they compound). The fortunes of the dioceses, almost all of which operate on a PAYG basis, are based upon the parish share, which is under acute pressure as many congregations advance towards extinction.

If the balance of obligations between the Commissioners and the dioceses is not redressed (i.e., the diocesan liability for accruals from 1 January 1998 is not adjusted) we will soon have the paradoxical situation of an impregnably flush fund providing periodic subventions to the tattered remnants of a Church. It should be noted that much of the Commissioners' assets have their origin in episcopal, capitular and parochial property drawn into the centre for the common good.

PS - I must make a plug for John Plender; he is one of the sanest, most informed and perceptive columnists writing for any British newspaper. He has taken a keen interest in Vatican finances and, I believe, is also the scion of a great accounting dynasty (which might help to explain his formidable technical competence). If Martin Wolf is the FT's answer to Walter Lippmann, Plender is one of the best financial journalists working in the UK since Harold Wincott or Paul Einzig.

Posted by: Froghole on Sunday, 21 May 2017 at 9:39pm BST

Well done the Commissioners - does this mean that clergy stipends will rise by 17.1%?

Posted by: Father David on Monday, 22 May 2017 at 6:12am BST

I am just left asking why, given all this good financial news, two cathedral Deans have been given P45s for asking for help with a temporary cash flow issue? It makes me wonder what kind of theology is undergirding the activities of the Church Commissioners. The message seems to be 'we will only fund success.' It's an acute reminder that we don't do theology in the Church of England any more, do we?

Posted by: Michael Mulhern on Monday, 22 May 2017 at 8:34am BST

I sent this to the diocesan chief exec, the area bishop, the archdeacon and uncle tom cobley this morning;
Stellar returns, so
1. clergy stipends can rise for the first time in aeons
2. pension fund safe
3. no need to pay parish quota
great news
oh, wait a minute, i was forgetting we dont live in this world.
The chief exec - a good sort - has already accused me of being "too funny".

Posted by: Stanley Monkhouse, the artist formerly known as Fr William on Monday, 22 May 2017 at 11:00am BST

As a clergy pensioner I am grateful for the financial skills of the Church Commissioners office. Thank you.

Fr John Emlyn

Posted by: Fr John E. Harris-White on Monday, 22 May 2017 at 11:16am BST

As Froghole notes, the Church Commissioners are not responsible for *current* clergy pensions, and have not been since 1998. Thus the burden on the Church Commissioners for pensions payments is reducing over time and, unless some further change is made, will eventually cease. One of the largest burdens on diocesan funds is the payment of clergy pension contributions, which go into the entirely separate post-1998 clergy pension fund.

Posted by: Simon Sarmiento on Monday, 22 May 2017 at 11:37am BST

So will this mean that part of the deficit on the Pension Fund can be addressed by the Church Commissioners rather than putting the burden on hard pressed diocesan finances to the tune of 39% stipend per stipendiary priest. It is this that is hugely increasing the cost of clergy and thus reducing the ability to pay as many as some would hope.

Posted by: Priscilla White on Monday, 22 May 2017 at 11:59am BST

It just won't do, you know, to confuse the issue with facts.

Posted by: Stanley Monkhouse, the artist formerly known as Fr William on Monday, 22 May 2017 at 1:57pm BST

As the resident Church Commissioner round here, let me make a few comments in response to others.

Several have suggested that larger sums could now be distributed for purposes such as defraying Parish Share, increasing stipends, taking on Pensions contributions and increased help for cathedrals. We take regular advice on the levels of sustainable distributions, keeping the fund there for future generations requires a much more subtle calculation than just how much the fund has grown in the past. The best advice says that we are at the top end of what we can afford to disburse, and have already added money to allow a smooth transition to the new funding streams without dioceses losing major proportions of support in short periods of time. Increasing distributions now and having to reduce them steeply in a year or two's time would be a dreadful route to follow.

Pensions payments are now peaking, but there is a long period before they drop very far as there are still lots of us in the system with pre 1998 service who are not ready to retire for a while yet.

We don't just fund "success". Half of the money that goes to dioceses for parish ministry now has a direct relation to level of poverty. We support keeping the church alive and active in places where the gap between what its local community could afford to pay and the ministry it receives and needs is the greatest.

The topic of how cathedrals are funded is an interesting one. The current model is very transparent but takes no note of need.

Posted by: David Walker on Monday, 22 May 2017 at 5:52pm BST

People would do well to consider the whole story here. Beck in the early 1990s the Church Commissioners lost a shedload of money through unwise investments. Since then they have set a challenging target for returns, and more than met it, to the extent that (on my calculations) their compound returns both recover the losses they made and meet their target over the long term. Extraordinary.

Part of the issue all those years ago was that the Commissioners barely had the assets to meet the pension and other liabilities they had taken on, which is why future pension liabilities were taken out, and the current pension fund is a relatively immature fund which has been building up in a period of low returns, hence the deficit - but that will look a bit smaller too after recent investment gains (investments can however go down as well as up).

Look at how well funded bishops and cathedrals are. If some of our parish churches got the same support, they might have the same chance to shine. But because the Commissioners funds came in part from endowments to fund bishops and cathedrals, they have obligations to finance their work. The assets of parishes were, by contrast, consolidated as part of diocesan funds in the 1970s (I think) to equalise stipends.

The Church Commissioners have reviewed their obligations recently and have recognised that their constitution requires them to support poorer parishes, so they have intentionally looked at spending more in this area. They have also noticed that the Church of England on the ground is under pressure and have allocated money to support grass roots work for the future. That is where Renewal and Reform comes in, and where the Commissioners have decided to spend modest amounts of capital on projects with a future focus, so that the church will be here in future generations. It is hugely controversial - the sums of money are quite large in terms of perhaps being game changers, but modest in terms of the excess return this year. Spending capital in theory privileges this generation over the future and deep questions have been asked - but what is allocated is only a part of the excess return above the challenging target. And the higher capital will generate additional income in due course.

The question may be whether some general allocation of the excess should be made in a way which eases the burden on everyone, or whether the targeted and accountable approach mainly being adopted is to be preferred. That of course is a question for the commissioners. Dealing with the current pension deficit or making a general allocation to dioceses would do the general thing. Whether the Commissioners would see this as within their remit would be an interesting questions. They need to be tackled as real questions rather than party squabbles or the sour comments of people positioning themselves as victims. How can we receive this as a gift?

Would we could grow our churches like this, though ...

Posted by: Mark Bennet on Monday, 22 May 2017 at 7:27pm BST

Looking back to the banking crisis abnormally high returns are usually the result of abnormally high risk. Abnormal risk eventually ends in disaster. One can double ones money placing it all on a coin toss. 17% is a brilliant result, but alarm bells should be ringing if excessive risks are being run. And if not, why are other fund managers less succesfull.

Posted by: T Pott on Monday, 22 May 2017 at 9:43pm BST

I must thank the Bishop of Manchester and Mr Bennet for their very cogent and enlightening remarks - and Mr Bennet for providing a correction about parochial endowments being transferred to the dioceses in the 1970s (which, having looked, seems to have been pursuant to Section 15 (1) of the Endowments and Glebe Measure 1976, which sanctioned the vesting of glebe in DBFs).

I don't doubt the wisdom of the current policy and the need for the Commissioners to review the financial state and prospects of the Church in the aggregate. Bishop Walker will presumably know as well as anyone the strain being borne by the dioceses (over the last generation the Manchester Diocese seems to have suffered a very high number of closures relative to other dioceses: in some areas this has reversed much of the work of Blomfield, Prince-Lee, Fraser, etc., but due in no small measure to the demographic changes that have occurred in much of south-east Lancashire).

However, I have encountered many places where the impact of the parish share is such that it can demoralise incumbents, PCCs and congregations. Some parishes fear that their inability to meet the share will be viewed by the relevant diocesan authorities as a preliminary to a scheme for closure (since it seems that so many 'pastoral' schemes are based upon financial rather than pastoral predicates).

This sort of fear, especially in many rural areas or urban locales where the Church is operating in a problematic environment, is not always conducive to dynamism and growth. Indeed, it can lead to the sort of pastoral and emotional situation that is the very opposite of what the Church is supposed to exist to achieve.

In this context the reluctance of the Commissioners to alleviate the burden of the parish share might appear perverse to many. If there are good reasons for retaining the existing policy then I would (impertinently) suggest that the Commissioners do more to explain what these are. Given the desperate demographics I have witnessed a lot of parishes will run out of road before the Commissioners think it prudent to change course.

Posted by: Froghole on Tuesday, 23 May 2017 at 10:01am BST

>Look at how well funded bishops and cathedrals are.

The recent experience of Guildford and the current commission to investigate how to fund cathedrals suggests that this is not actually the case.

There is an overlay of "Omigod the Titanic will sink unless the Government gives us another £100m" begging stories, and the PR disasters from senior members of the commission going off piste and damning some cathedrals before the thing has even started investigating, but "well-funded" does not seem to be an accurate description of the current status.

Posted by: Matt Wardman on Wednesday, 24 May 2017 at 7:50am BST

The question for the Church Commissioners is that since their returns well exceed their distributions, what should be done with the surpluses, how can the money best be used to stem the long term decline of the Church of England, much good work is being done via the Strategic Development funding for which Dioceses bid and much good thinking is going into Growth initiatives. Cathedrals are a burning issue and have not yet received the sort of support poorer dioceses have.

Lots to think and pray about

DBF Chair Leicester.

Posted by: Stephen Barney on Thursday, 25 May 2017 at 10:47am BST

"How can the money best be used to stem the long term decline of the Church of England"? asks Stephen Barney. It might help if local parish churches, which connect the non-churchgoing British public to this increasingly exclusive members-only club, were given properly resourced and theologically imaginative clergy. From my point of view, while all the money is going to fund the mega-church model, the places that actually have the potential to connect more effectively with their locality (we're talking non-metropolitan, of course) are left to flounder. In my diocese, we are saying 'good bye' (and, if I'm honest, 'don't come back') to a Bishop who has invested far too much time, energy and money into the ideal of HTB-type 'success' stories. This has seriously eroded the confidence and potential of the smaller parish churches that offer ministry to everyone without strings or the pressure to become 'committed.'

We will look back on this period of the C of E's history as a disastrous, short-term, Cromwellian purge which only served to alienate vast numbers of people who looked to us to offer an intelligent and sensitive place of reflection. Instead, all they found were slogans, defensiveness and barely-concealed demands for their money.

Posted by: Alan Mitchell on Friday, 26 May 2017 at 9:04am BST

I think that risk is high, and over time that has paid off. The excess returns this year need to be partly, at least, reserved against future risk. But also the CC are taking advantage of the fact that they have historically relied on a wide portfolio of asset classes, which they understand better than the market as a whole, Don't assume that will continue without a strategy.

Posted by: Mark Bennet on Saturday, 27 May 2017 at 9:13pm BST
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