The £1.4bn (€2bn) return-seeking pool of the Church of England Pensions Board (CEPB) portfolio returned 8.5% during 2014, largely because of good equity performance and outperforming its 8.1% benchmark’s return, according to the fund’s latest accounts.
For the £1.7bn fund as a whole, the 2014 return was 9.7%.
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’ £6.7bn endowment fund.
The average annualised return on the return-seeking pool for the three years to 31 December 2014 was 12.5%, outperforming the benchmark return of 11.9% over the same period.
Over the five years to the same date, the return was 9.2% per annum, with 8.7% for the benchmark.
The fund’s £287m liability-matching pool returned 18.1% for the year to 31 December 2014, compared with 19.2% for the benchmark.
Annualised performance over the three years to that date was also slightly under the benchmark, at 6% compared with 6.1% for the benchmark.
As of the end of 2014, the return-seeking pool was 58% global equities, 19% UK equities and 10% property.
The CEPB said the pool benefited from its overseas bias during 2014.
Global equities returned 10.5%, compared with 10.2% for the benchmark, while the UK equity portion returned 0.7%, compared with a benchmark return of 0.9%.
The property allocation also performed well, with a return of 15.9%, although this was lower than the 16.5% benchmark return.
At end-2014, the liability-matching pool was split 77% index-linked government bonds and 23% corporate bonds, exactly the same allocations as the year before.
Within this pool, UK index-linked Gilts returned 20.3%, with corporate bonds returning 12.4%.
Jonathan Spencer, chairman at CEPB, said it was their intention to switch, over a period of time, some return-seeking assets to those matching the scheme’s liabilities, but that the price of bonds had made this difficult.
“While we had been able to make small switches, the circumstances were right to make a larger switch late in the year,” he said.
“The decision reduced investment risk in the fund and thereby should provide more stability for the employers participating in it.”
During 2014, the CEPB made an allocation of £50m – equivalent to 4% of the return-seeking pool’s assets – to local-currency-denominated bonds issued by emerging market countries.
It expects to make an allocation of similar size to privately arranged loans to small businesses this year.
Also during 2015, the fund looks to extend its commitments to infrastructure, while considering an increase in illiquid asset class investments for the return-seeking pool.
The CEPB invests ethically, with its policy and practice shaped by the Church’s Ethical Investment Advisory Group (EIAG).
It excludes tobacco, gambling and weapons and is implementing a policy on alcohol.
Over the last year, the CEPB has co-filed climate change resolutions at the AGMs of BP and Shell that were subsequently carried.
It said that, in 2015, policy recommendations from the EIAG would lead to significant engagement with the fossil fuel sector, as well as exclusions from the most polluting fossil fuel producers.