The Church of England’s investment portfolio is to spend £100m on a huge expansion of the clergy as booming property values pushed it to over £6.7bn.
The move marks a significant shift in the strict way it has been run to “preserve the generational equity” so that its value is at least held steady in real terms.
So strong was its portfolio performance – which left the stock market standing with a 14.4 per cent return last year – it is now worth £1bn more than before taking a severe knock in the financial crisis.
The dramatic rebound from the lows of 2008 when the Church was forced to raise the retirement age for the clergy has facilitated the “over-distribution” to allow the church to “dig in” against decline and increase numbers by up to 50 per cent.
Property was the leading component of last year’s stellar return and investments totalled just under £2bn at the end of 2014, nearly 30 per cent of the portfolio. The average return in 2014 was 27 per cent, but only 2 per cent of that came from rental income.
The rest was from capital growth, including realised gains on sales such as the £381m disposal of the Church’s majority interest in Mayfair’s pollen estate, which remains its largest sale to date. The performance of its private equity holdings was described as “also satisfactory”.
Returns have further been boosted by a series of new ventures, including becoming the biggest private owner of forestry and timber in the UK, together with a move into private credit to satisfy “a real demand for alternative sources of credit”.
Andreas Whittam Smith, the First Church Estates Commissioner and founder of The Independent, said the fund’s 30-year performance had produced a return of RPI inflation plus 6.3 per cent, or 9.8 per cent per annum, since 1985. At the beginning of 1995, however, it was valued at just £2.4bn after a series of heavy losses. “This means that all traces of the losses made by the Church Commissioners in the early 1990s have now vanished from the record. In a good sense, that is not by contrivance but by achievement,” Mr Whittam Smith said.
He described funding the expansion plan as being intended “to equip the church for the future” and as “good over-distribution” that is “undertaken for a clear purpose in response to plans that are evidence based, is fully costed and is entered into with the agreement and understanding of all parties.” The £100m expenditure will likely be made over a period of several years.
The annual report reveals that the top paid employee – the Commissioners’ Director of Investments – made £409,000, an increase of £75,000 in pay over the previous year, including £160,000 from the church’s long-term incentive plan (L-tip).
Although the performance of the Church’s portfolio has been impressive, such remuneration plans are sparking controversy. Earlier this week the High Pay Commission issued a report blaming them for the dramatic rise in pay at the top of corporate Britain and calling for them to be abolished. Seven other members of staff received L-tips in the year totalling £509,000.
Mr Whittam Smith, however, defended its existence. He said that the pay plan “is not going to cause any distortions” such as those the report says could affect listed companies.
“We are not a trading body and to achieve the return we want, we have to pay what asset managers earn,” he said.
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