The publication of the Church Commissioners’ full report for 2010 has been announced today with this press release (now online).
Church Commissioners continue to support the Church in ‘challenging financial times’
The Church Commissioners have today published their full Annual Report and Accounts for 2010.
It follows publication of their 2010 annual results on April 15th, when they announced a 15.2 per cent return on their investments during 2010 and confirmed the fund’s strong long-term performance. The fund has now outperformed its comparator group over the past 10 and 15 years.*
Andrew Brown, Secretary to the Church Commissioners, said: “These are challenging financial times for all charities and public bodies, and the Church is not immune from these pressures.
“Although the Commissioners provide around 17p in the pound towards the costs of the Church’s mission, the vast majority of the remainder comes from the generosity of today’s worshippers. Parishes and dioceses rely on their continued support. Our contribution is biased towards supporting poorer dioceses.”
The Commissioners – who contributed more than £200 million in 2010 towards the cost of maintaining the mission of the Church of England – grew their fund to £5.3 billion (from £4.8 billion at December 31, 2009). More than half of their contribution meets the cost of clergy pensions earned before 1998.
Today’s report shows that the Commissioners are able to distribute £26 million more each year to the Church than if their investments had performed only at the industry average over the last ten years, while pursuing their policy of maintaining the real value of the fund.
Writing in the report’s foreword – full text below – Andreas Whittam Smith, First Church Estates Commissioner, expresses his caution for the future:
“The reason we are cautious is that for some time to come the world will struggle with the consequences of the financial crisis. Many governments, including our own, are heavily in debt and are striving to reduce public spending. Consumers, too, have total borrowings that are above their comfort levels. In addition, the banks, burnt by the very crisis they themselves caused, have restricted their lending.
“The upshot is that the Assets Committee is working on the assumption that while 2011 may well prove to be the third year in a row when equity markets, helped by low interest rates, deliver strong gains, conditions are not in place for the development of a multi-year bull market. We are also conscious that the task of meeting our pension liabilities, albeit under a scheme that closed in 1998, becomes more onerous during the next ten years. This reduces our margin for error.”
He explains that the Commissioners’ Assets Committee is revising its investments strategy: “Our habit of maintaining a very high weighting in equities and real estate regardless of market conditions, while it had served us well, is no longer appropriate.
“We must now be prepared to vary our asset allocations in a dynamic fashion, albeit purposively rather than rapidly. Careful phasing can mitigate any risks from mistiming. As a result we have begun to reduce the proportions of our funds held in pure risk assets.
“In cutting back our holdings of equities, however, we have decided to reduce our positions in global equities rather than in UK shares. On relative valuation grounds, the British market at its current levels is one of the more attractive ones.”
Mr Whittam Smith goes on to review asset classes, including timber and other ethical investments in which the Commissioners are placing their funds.
Returns from the fund, held in a broad range of assets, pay for: clergy pensions for service up to the end of 1997; supporting poorer dioceses with the costs of ministry; funding some mission activities; paying for bishops’ ministries and some cathedral costs; and funding the legal framework for parish reorganisation.
The Commissioners manage their investments within ethical guidelines, with advice from the Church of England’s Ethical Investment Advisory Group.
The Annual Report can be read in full here
There are some accompanying “Notes for editors” below the fold.
Notes for Editors
*(See paragraph two). The comparator group quoted is the WM All Funds Universe. It is a collection of the investment results of UK pension funds and is widely used as an independent measure of the performance of funds. There were 203 funds in the 2010 universe, and there were 137 and 119 funds that have been included in the sample for the last ten and fifteen years respectively.
The Church Commissioners
The Church Commissioners play a vital role in supporting the Church of England as a Christian presence in every community.
The Commissioners fund all clergy pensions earned before 1998. (Pensions earned since then are paid from the separate Funded Scheme, which is funded by contributions from dioceses and other Church bodies).
The Commissioners’ fund is a closed fund, taking in no new money.
Actuaries assess the Commissioners’ fund in detail every three years (with yearly ‘desktop’ reviews in the intervening period) to advise on how much they can safely plan to spend to maintain sustainable distributions.
The Commissioners’ mission is to support the Church of England’s ministry, particularly in areas of need and opportunity. Their main responsibilities are:
The 33 Church Commissioners are:
The Queen Anne’s Bounty and the Ecclesiastical Commissioners joined in 1948 to form the Church Commissioners. Queen Anne’s Bounty was a charity founded in 1704 to help poor clergy. The Ecclesiastical Commissioners were given the estates belonging to bishops and cathedrals, so they could fund their ministry as well as the Church’s ministry into new urban areas.
Introduction to Church Commissioners’ 2010 Annual Report by the First Church Estates Commissioner, Andreas Whittam Smith
‘You are only as good as your last film’ it is said in Hollywood. In the same way, the trustees of the Church Commissioners’ £5.3 billion endowment are only as good as their most recent results. This is especially true at the moment. For members of the Assets Committee, who have responsibility for the Commissioners’ investment decisions, well understand that the economic outlook is, to put it frankly, unpromising. That perception has influenced many of the decisions we took during 2010, as I shall describe.
In the event our ‘last film’, which was performance of the Commissioners’ funds in 2010, was excellent. The total return in 2010 was 15.2 per cent. As always there are two questions that should be asked about investment performance. How does
it relate to what the beneficiaries of the fund can reasonably expect? In 2010 we reached the target we have set for ourselves with room to spare. Our long-term goal is to exceed the rate of inflation by five percentage points per annum. The retail price index rose by 4.8 per cent so we were over ten percentage points ahead. The second method of assessing performance is to compare it with the track record of comparable funds. Have we been managing our assets with reasonable skill? Here we can take comfort from the fact that we exceeded the industry average by more than two percentage points, a useful margin.
Looking back over the years, a third desirable characteristic comes to the fore. This is consistency. Our beneficiaries require stability. For the dioceses and cathedrals to which we make distributions, for example, volatility in the sums they receive from the Commissioners would make managing their resources more difficult, particularly as regards salary costs. We attempt to achieve consistency by investing our funds on a long-term view as well as by smoothing out the level of our distributions.
Turning to the Commissioners’ investment record over the longer term, it can be seen that we have consistently passed the second test, which is comparing our performance with that of comparable funds. As to the first test, although taking the past twenty years as a whole we have exceeded inflation plus five percentage points per annum (9.4 per cent per annum compared with 7.9 per cent), the shorter-term comparisons show that we have been falling behind since the turn of the century (6.3 per cent per annum versus 7.9 per cent). That emphasises that, although 2010 was satisfactory, we are not living in easy times for asset management.
The reason we are cautious is that for some time to come the world will struggle with the consequences of the financial crisis. Many governments, including our own, are heavily in debt and are striving to reduce public spending. Consumers, too, have total borrowings that are above their comfort levels. In addition, the banks, burnt by the very crisis they themselves caused, have restricted their lending.
The upshot is that the Assets Committee is working on the assumption that while 2011 may well prove to be the third year in a row when equity markets, helped by low interest rates, deliver strong gains, conditions are not in place for the development of a multi-year bull market. We are also conscious that the task of meeting our pension liabilities, albeit under a scheme that closed in 1998, becomes more onerous during the next ten years. This reduces our margin for error.
Led by Tom Joy, our Director of Investments, the Assets Committee took a policy decision during 2010 to broaden the range of classes considered for investment, and also to be more flexible in distributing funds among the various asset classes through time. Our habit of maintaining a very high weighting in equities and real estate regardless of market conditions, while it had served us well, is no longer appropriate. We must now be prepared to vary our asset allocations in a dynamic fashion, albeit purposively rather than rapidly. Careful phasing can mitigate any risks from mistiming. As a result we have begun to reduce the proportions of our funds held in pure risk assets. In cutting back our holdings of equities, however, we have decided to reduce our positions in global equities rather than in UK shares. On relative valuation grounds, the British market at its current levels is one of the more attractive ones.
Where, though, should we be reinvesting the funds that have been thus released? We intend to open up a new asset class by making an investment in US timberlands. Timberland has provided investors with attractive returns in relation to risk over many years. Timber is a slow growing crop with opportunities for harvesting occurring after the first five years and for many years thereafter. The Commissioners’ staff have met with a wide range of possible managers in the United States and more recently members of the Assets Committee have crossed the Atlantic to meet the preferred managers.
We are also planning to extend our use of carefully selected hedge funds that meet our strict ethical guidelines. Many of them proved their worth during the financial crisis. We are already using one manager who runs an absolute return fund in which the Commissioners have a holding. Its results have been excellent. Absolute return funds typically pursue trading strategies that are indifferent to market direction and invest within or across asset classes, markets, regions and time horizons. There are other types of hedge fund that focus strictly on equity investment coupled with structures that limit downside risk. Others look for particular opportunities created by particular market events including mergers, restructurings and financial distress.
Our ethical guidelines mean that we take care neither to be party to pushing movements in commodity prices further than they would otherwise go nor to engage in similar movements in currencies. We must also avoid putting undue pressure on companies that may be in difficulties. We are confident we can avoid such situations. In the case of our current manager, for instance, we have been happy to increase our involvement recently.
Finally there is one asset class in which we have declined to participate for the time being, UK government bonds. They are unattractive when inflationary forces are gathering strength. For in managing risk, it is as important to say ‘no’ as it is to say ‘yes’.