The £1.6bn (€2bn) portfolio of the Church of England Pensions Board (CEPB) made 18.6% on its return-seeking investments in 2013, outperforming the benchmark’s 17.6% return, according to its latest accounts.
The average annualised return on the £1.4bn return-seeking pool for the three years to 31 December 2013 was 8.5%, outperforming the benchmark return of 7.5% over the same period.
Over five years to the same date, the return was 11.2% per annum, with 11.1% for the benchmark.
The fund’s £210m liability-matching pool also outperformed its benchmark by 0.1% with a return of 0.6%, while its performance over three years at 7.6% equalled its benchmark.
The CEPB runs a number of pension schemes, with more than 35,000 current or future beneficiaries, including clergy and church workers.
Benefits for pre-1998 service are provided by the Church Commissioners’ £6.1bn endowment fund.
In its annual report, the CEPB said 2013 was a year of very good returns for equities, with only emerging markets posting a disappointing performance.
Major fixed interest markets were flat over the year, as they were in 2012.
At end-2013, the return-seeking pool was made up of 65% global equities, 20% UK equities and 8% property.
As in 2012, overseas equities – which returned 23% for the return-seeking pool – outperformed UK stocks, which returned 20.7%.
The report said: “Emerging market equities have been disappointing, losing 6.1% over the year, but the allocation to global small-cap equity has worked very well indeed, returning 37.7% in 2013.”
The property allocation, managed by CBRE, was increased in spring 2013, while the geographical balance was shifted to 50:50 UK versus overseas holdings.
Property will make up 10% of the return-seeking pool once the new commitment has been drawn down by CBRE.
The allocation to infrastructure, standing at 1% at end-2013, will reach 8% once commitments have been drawn.
During 2013, 8% of the return-seeking pool was reallocated from actively managed global equity to two new high-conviction equity mandates managed by Edinburgh Partners and Longview Partners.
These seek high returns from conventional large-cap equities by taking relatively concentrated portfolio positions.
The CEPB said it spent much of 2013 investigating emerging market debt and other forms of debt investment for the return-seeking pool.
But with the onset of the US Federal Reserve’s tightening, or at least ‘tapering’, of US monetary policy towards the middle of the year, it decided to hold back from investing, although it is following the asset class during 2014.
At end-2013, the liability-matching pool was split 77% in index-linked government bonds and 23% in corporate bonds.
The CEPB invests ethically, with its policy and practice shaped by the Church’s Ethical Investment Advisory Group (EIAG).
During 2014, the EIAG is continuing its major review of policy recommendations on climate change and investment.
It will also advise the CEPB on the use of pooled funds, publishing a policy this coming autumn.
Last summer, the Church Commissioners were found to have invested in controversial payday lender Wonga, via a venture capital partnership.
Meanwhile, the tri-annual valuation of The Church of England Funded Pensions Scheme (CEFPS) – the largest pension scheme run by the CEPB – was completed in 2013 and showed a deficit of £293m, compared with net assets of £896m.
Contributions have been raised from 38.2% to 39.9% of pensionable stipend as from 1 January 2015.
In addition, because of the scheme’s increasing maturity, the fund’s de-risking strategy continues, moving the fund from being 100% invested in return-seeking assets to a 60:40 split between liability-matching assets and return-seeking assets, to be achieved linearly by end-2029.
The fund’s recovery period runs for 12 years from 1 January 2014.