UK – The £4.9bn (€7.1bn) Church Commissioners – responsible for paying vicars’ pensions – saw an increased shift from UK equities to global equities in 2005, according to its annual report.

The move included creating a new £25m specialist European smaller companies mandate – awarded to Montanaro Investment Managers in the latter part of last year - and increasing investment in emerging markets.

A further £25m was switched from UK equities into a global equities mandate managed by one of the fund’s four outperforming fund managers.

“In common with most major UK investors, the Commissioners have increased their exposure to global equities and have lowered their exposure to the UK stock market, which is dominated by a small number of stocks and sectors. Thereby we hope to improve portfolio diversification,” a spokesperson for the Church of England told IPE.

The fund had 58% of its portfolio invested in equities in 2005. According to the spokesperson, 22% of total assets were allocated to global equities at the end of last year, 10% of which (i.e. 2% of total assets) were invested in emerging markets.

According to the report, the return on global equities, including cash held by managers, was 24.1%.

This was “slightly behind the benchmark, reflecting somewhat dull stock selection”, said the report. Ethical investment restrictions also reduced performance by roughly 0.1%.

The report added: “We are keeping the management of the global equities portfolio under close scrutiny.”

The Commissioners also changed the management arrangements of the fund’s core equity portfolio by setting up an index-tracking mandate, managed by Legal & General.

“The change aims to achieve more consistent and cost-effective performance,” said the report.

Aberforth Partners and Barclays Global Investors manage satellite mandates with outperformance objectives to add value to the overall UK equities portfolio, the report added.

The consolidated UK equities portfolio returned 20.6%, fixed interest returned 7.9% and commercial property returned 19.5%. Overall, the fund achieved a 19.1% total return on assets.

By year-end, virtually all the fixed interest portfolio was invested in a UK gilts fund managed by Legal & General, said the report.

The fund paid roughly £100m towards clergy pensions in 2005.

“The Church remains alert to longer-term issues of pensions funding and affordability as the regulatory framework continues to evolve,” said the report.

The Church expressed particular concerns about the cautious estimates of future asset returns and the heavy burdens placed on pension providers.

According to the report, “A consultation document has recently been issued to help the Church take an overview of these matters and find a way forward.”