Church Commissioners Slides in 2017, but Still Returns Strong Results

Church pension prepares for lower future returns, more volatility, and higher interest rates.

Despite falling behind its benchmark, the Church Commissioners for England was able to harvest positive returns in 2017.

Weak bond markets held the $11.2 billion fund to a 7.1% return for the year, below its 9.1% benchmark and well below 2016’s 17.1% return. Nevertheless,  the Anglican pension fund noted that it had a superior long-term performance.

“While this year’s performance at 7.1% was short of our target of 9.1% (RPI + 5%), our historic performance over a 30-year period shows annual growth of 9.4% per annum (target 8.4%) and 12.4 % over five years (target 7.4%),” said First Church Estates Commissioner Loretta Minghella in a statement. The pension fund is sponsored by the Church of England, the UK’s dominant Protestant denomination.

The Commissioners’ equity portfolio returned 15% of the total, outperforming the market by 2.7 percentage points. Private equity achieved 7.2% of the full return in 2017, and the fund is looking to increase allocation in this class over the next several years. Commercial real estate also performed well, returning 10.5% of the entire portfolio.

With returns under 5% of the total, fixed income and real assets were still positive. The rally of credit markets helped bring returns of the fixed income portion to 4.8%, while real assets achieved 4%, although this part of the portfolio paled in comparison to previous years.

As for the future, the Church Commissioners is preparing for higher interest rates coupled with more volatility and smaller returns than the last few years have reaped.

“The macro economic environment is changing and, anticipating muted returns in the future, we will continue to develop our focus on non-traditional asset classes,” Minghella said. “Our perpetual endowment and long-term horizon is well-suited to maximizing returns from less liquid markets, including venture capital.”

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