The Church of England (CoE) has announced it will be further increasing its investment in hedge funds and private equity, in a move aimed at tackling its fast-growing pension payouts.
The religious institution, once the biggest landlord in 19th century Britain, has one third of its £6 bn ($10 bn) endowment, which is managed by church commissioners, dedicated to real estate, while investments in traditional equities and bonds have gradually declined. The CoE is now one of the largest single investors in hedge funds in the UK and one of the top 50 in private equity, according to data provider Prequin.
First church estates commissioner Andreas Whittam Smith, who has led the organization’s highly profitable investment diversification scheme, defends his move in the Financial Times, labeling as ‘ridiculous’ the conviction that ‘all hedge funds have devil’s horns… Everything we invest in is run through our ethical investment advisory group (EIAG) and hedge funds, unlike armaments, are not a banned category.’
The church’s investment policy forbids buying stakes in companies involved in alcohol, tobacco, gambling, arms dealing and pornography. Short selling, on the other hand, is deemed acceptable by the EIAG if ‘done in a responsible way’ and hedge funds the church invests in are reportedly screened according to ‘rigorous ethical criteria’.
Although its private equity investments have ‘significantly outperformed public equity markets since their inception in 1997’ according to the church’s latest annual report, they have also generated an embarrassing moment for the organization. Last July, Archbishop of Canterbury Justin Welby announced the CoE’s intention to put UK payday lender Wonga out of business by promoting credit unions, only to discover that the church had an indirect stake in Wonga.
This controversial investment, made via a pool fund of US venture capital firm Accel Partners, cannot be divested overnight without generating significant loses from other more constructive ventures, according to the Guardian newspaper.
The commissioners’ aggressive investment strategy may have yielded returns exceeding their target of 5 percent above inflation, but these earnings represent only 15 percent of the institution’s overall revenue. Charitable giving such as parishioner collections, grants and fundraising still account for more than half of the CoE’s total income, reminds its annual report.
