UK – The £1.3bn (€1.5bn) portfolio of the Church of England Pensions Board (CEPB) made 10.6% on its return-seeking investments in 2012, outperforming the benchmark’s 10.1%, according to its latest accounts.
The return on the £1.1bn return-seeking pool for the three years to 31 December 2012 was 6.5%, outperforming the benchmark return of 6% over the same period.
The fund’s £200m liability-matching pool equalled its benchmark with a return of 0.4%, while its performance over three years was slightly better than the benchmark, at 10.9% compared with 10.5%.
The CEPB runs a number of pension schemes, with more than 32,000 members, including clergy and church workers.
Benefits for pre-1998 service are provided by the Church Commissioners’ £5.5bn endowment fund.
The CEPB said the main contributor to its 2012 performance had been the improvement in equity returns.
The lion’s share of the return-seeking portfolio (58%), as at 31 December 2012, was in non-UK equities, which returned 14.1% over the year.
UK equities – 20% of the return-seeking pool – made 10.8% over the year.
In its report, the CEPB said: “There has been a consistent picture of overseas equities performing better than UK equities over the long term, and the board has gradually shifted the bias of its equity investments to reflect this, with additional return being sought from investment in smaller companies globally and from companies in emerging markets.”
Emerging markets and small companies each make up 8% of the overall portfolio.
Jonathan Spencer, chairman at the CEPB, said the board continued to shift the balance from UK to overseas equities throughout last year, and that this move is almost complete.
“We have also been moving more towards passive investments in large caps, both in the UK and overseas, because these are areas where managers are unable to deliver much added value,” he said.
“However, we will pay for active management when this can deliver above-market returns in less efficient markets.”
Managers’ fees for 2012 were 0.2% of the average value of funds under management.
Meanwhile, the allocation to index-linked corporate bonds in the liability-matching pool was increased from 3% to 16%, in response to the historically high valuations of UK Gilts during 2012.
The remaining 84% of the portfolio is held in index-linked government bonds.
During 2013, the CEPB is evaluating growth fixed income and a third active equity class.
It will also make further investment in property and infrastructure, and expects to appoint a manager for each of these two asset classes this year.
The CEPB invests ethically, with its policy and practice shaped by the Church’s Ethical Investment Advisory Group (EIAG).
The EIAG’s ethical investment agenda for 2013 includes recommendations on genetic modification and executive remuneration.
EIAG chairman James Featherby stressed the importance of an integrated investment approach focusing on environmental, social and governance issues in the wake of the UK government’s Kay Review on long-term investing.
In the chairman’s letter attached to EIAG’s annual review, he said: “Institutional investors do not always find scrutiny of this kind easy. Sometimes they prefer to keep their focus on the immediate job of simply generating financial returns for beneficiaries.
“However, it is becoming clear that, where historical assumptions and practices stand in the way of good principles, it is not the good principles that should give way.”
There will also be a substantial policy review on climate change.
Meanwhile, a thorough check carried out after the Church Commissioners were found to have invested in Wonga has shown that the CEPB does not own shares in the payday lender.
“We don’t invest in venture capital partnerships [the vehicle through which the Commissioners’ investment was made],” said Spencer.
“This is partly because of the difficulty of knowing where the funds will end up.”