The Church of England Pensions Board took a -2.6% beating in 2018, and it disclosed in its annual report what’s keeping its investment team up at night and what it plans to do about it.
Equities during the fourth quarter put a majority of that pain on the fund’s earnings, especially when such holdings helped rocket the fund to a 9.4% gain in 2017. Stocks lost -6.9% during the year.
“The final quarter of 2018 was a turbulent period, particularly for public equities, and the Board’s results dated 31 December 2018 partly reflect this,” the board’s Chief Investment Officer Pierre Jameson said. He added that the fund had “also seen the benefit of diversification away from equities with investments in property and infrastructure delivering strong returns.”
Property and infrastructure returned 10.7% and 7.5% over the period, respectively.
To help turn it around, one of the Church fund’s goals for 2019 is to continue diversification by cutting equities and adding more of that sweet infrastructure and also allocating more of its portfolio to private equity. Stocks are currently 65% of its $2.4 billion return-seeking portfolio, but it’s far away from its 35% long-term target. That element dropped 2.2% of its value in 2018.
The rest of the pensions board’s $2.9 billion portfolio is in two bond portfolios: a liability-matching pool—all in high-grade corporate bonds—and another holding UK government bonds.
In the annual report, the fund disclosed the risks it’s been facing and how it will mitigate them should they transpire.
Top woes are “significant wider economic issues,” specifically Brexit-related problems such as deflation, stagflation, or fluctuations in property prices. Diversifying investments, more stringent performance tracking, and monitoring economic risk scenarios and trends were some of the avenues the plan mentioned in navigating these troubles.
The fund is also worried about societal changes such as new mortality rate levels, which it reviews yearly and considers when making its actuarial assumptions. Legislative changes are always on their radar: The fund’s pensions committee watches out for these items regularly.
Other issues were more internal, such as reputation-damaging occurrences, compliance problems, and data hacks. The plan will strengthen its IT infrastructure and uphold its policies for those items.