The £1.7bn (€2bn) portfolio of the Church of England Pensions Board (CEPB) returned 2% during 2015, compared with 9.7% for the previous year, with property the outstanding performer.
The CEPB runs a number of pension schemes, with more than 35,000 current or future beneficiaries, including clergy and church workers.
The CEPB invests ethically, with its policy and practice shaped by the Church’s Ethical Investment Advisory Group (EIAG).
It said these ethical restrictions added around 0.9% to its returns over 2015, with the ethically adjusted MSCI World Index returning 4.6%, compared with 3.3% for the unadjusted index.
The fund is split into a £1.4bn return-seeking pool and a £287m liability-matching pool.
Over 2015, the return-seeking pool delivered 2.5%, compared with 2.9% for the benchmark.
The liability-matching pool returned -0.3% for 2015, compared with -0.8% for the benchmark.
As of end-2015, the return-seeking pool was 55.8% invested in global equities, 17.4% in UK equities and 11.1% in property.
Global equities returned 2.4%, compared with the benchmark’s 2.8%, while the UK equity portion delivered -0.4%, compared with a benchmark return of -0.3%.
In its report, the CEPB said: “UK equity returns were slightly negative for the year, the FTSE 350 being down 0.3%. Significant headwinds included concerns over the future of the European Union, slowing economic growth in China and continued weakness in commodity prices, oil and metals in particular.”
But it added: “On a more positive note, our allocation to small companies continues to generate better returns than mainstream large companies, with a return over the year of 6.1%, which was 0.2% better than benchmark.”
And it said it continued to reduce the fund’s allocation to UK equities gradually, to reduce the effect of the home market’s artificial bias to global resource stocks and financial services.
Furthermore, it said the return-seeking pool’s allocation to non-equities – now 23% – would be increased over the next two years at the expense of equities.
Over 2015 as a whole, the outstanding performer was property, with a return of 12.4%, the same as benchmark.
The property allocation, managed by CBRE, is invested via pooled funds in a spread of retail, offices, industrial warehousing and student accommodation.
Geographically, there is a 50/50 split between the UK, and North America and Asia.
Infrastructure – through First State and Antin pooled funds – returned 5.7% for 2015, compared with a benchmark return of 5.2%.
While the amount invested rose from 3% to 3.8% of the total portfolio, the target allocation has now been raised from 6% to 9%.
Pierre Jameson, CIO of the CEPB pension funds, told IPE: “We increasingly like private markets because we like the illiquidity premium.
“Our largest pension scheme for clergy is quite immature, so we can take the opportunity to play the illiquidity premium and make enhanced returns.”
First State investments during 2015 included Portuguese wind farm owner Finerge, and HH Ferries, which runs ferries between Denmark and Sweden.
In early 2016, the CEPB agreed an allocation of £80m (5% of return-seeking assets) to private loans to smaller companies in the US, managed by Audax Senior Loans.
Jameson said: “The loans will be repaid over 2-5 years, so there is some illiquidity here. And because they are private loans, they are not subject to mark-to-market rules.”