Star Magnolia Capital
Sustainable Philanthropy Case Study - Church of England
Sustainable Philanthropy Case Study
Name: The Church Commissioners for England
Type: Perpetual Endowment
Size: $11.5 bn (£8.7bn)
Year of Establishment: 1948
The Church Commissioners for England is an organization that manages a £8.7bn investment fund for the Church of England. Its long-term objective is to continue to support the Church and it does this by using returns to provide funding for mission activities, diocesan and ministry support, clergy pension payments (pre-1998), bishop’s ministry and cathedral costs, parish reorganization and closing costs, and national payroll for clergy.
There are 33 Church Commissioners that have the trustee responsibility for meeting charitable obligations. Six of the Commissioners hold offices of state and the other 27 make up the Board of Governors, the main policy-making body. Board members are organized into five committees—Assets, Audit and Risk, Bishoprics and Cathedrals, Church Buildings, and Mission and Pastoral, in which they are joined by other non-trustee members. All committees are supported by an executive team led by Secretary (Chief Executive) Andrew Brown.
The Church Commissioners was set up in 1948 to combine the assets and duties of Queen Anne’s Bounty, a fund dating from 1704, and the Ecclesiastical Commissioners, which was formed in 1836. Queen Anne’s Bounty was the solution to widespread clerical poverty that was causing many clergy members to take on other jobs. It wrote off the debts of poorer clergy and granted the income of compulsory tithes to the fund. The Ecclesiastical Commissioners were responsible for reorganizing dioceses, abolishing surplus posts in cathedrals, and funding bishops and some cathedral costs. In 1857, the Ecclesiastical Commissioners took over the work of the Church Building Commissioners and from 1907 began to provide clergy pensions.
By the 20th century, Queen Anne’s Bounty was more focused on poor rural areas while the Ecclesiastical Commissioners focused on urban areas. The two bodies merged in 1948 to form the Church Commissioners, which inherited both the assets and the work of both organizations. Notable changes to the role of the Church Commissioners since its inception include the transfer of obligations for clergy pensions earned after 1998 to parishes and the formation of the Archbishops’ Council in 1999, which provided the Church Commissioners with a clearer focus on their asset management functions.
The Church Commissioners provide funding and support for mission to churches, dioceses, and cathedrals throughout the Church of England. The organization outlines its mission:
To manage its financial commitments
To provide sustainable financial support to its beneficiaries
To target resources on areas of need
To identify and help to meet new needs
To research and share news of effective spending
To provide an administrative resource and skill base to the Church
Regarding investments, the Church Commissioners’ objectives are:
To manage the fund to ensure sustainable distributions for our beneficiaries
To achieve a total return of RPI (inflation) +5% p.a. measured over the long term
To meet performance benchmarks for individual asset classes
To manage financial risks appropriately
To act within our responsible investment guidelines
Regarding governance, the Church Commissioners’ objectives are:
To ensure cost-effective administration of the Commissioner’s responsibilities
To identify and manage organizational risk
To be transparent and accountable in all organizational activity and internal governance
To ensure trustees are properly resourced for their role
To apply ethical investment policy guidelines
The fund follows a total return investment approach with a strategy of generating a return of inflation (RPI) + 5.0% p.a. on average over the long term. The investment policy is to hold a diversified portfolio of investments across a broad range of asset classes consistent with ethical guidelines. The Church Commissioners have developed a reputation for taking highly contrarian positions, an example being their current aversion for passive investing.
In 2016, nearly a quarter of the portfolio is in property, and investment in real assets are spread across commercial, residential, and agricultural property as well as in indirect investments into property and land. In 2011, the Church Commissioners began investing in timberland and forestry and has recently begun investing in infrastructure. These real investments are nearly all managed in-house, while investments in public and private equity and credit are typically allocated to external managers. Because of Church Commissioners’ perpetual status, it is able to invest in more illiquid, unusual assets than a typical asset manager.
Because of ethical guidelines and its affiliation with religion, Church Commissioners exclude from its direct investments companies involved in indiscriminate weaponry, conventional weaponry, pornography, tobacco, gambling, non-military firearms, high interest rate lending, human embryonic cloning, extraction of thermal coal, and production of oil from oil sands. The fund also maintains restrictions in the alcohol sector. Overall, the fund will exclude companies from direct investments if they do not meet minimum standards of responsible marketing and retail.
In 2016, the fund returned 17.1% and provided £230.7m in support to the Church of England, which accounted for approximately 15% of the Church’s overall mission and ministry costs. Over the past 30 years, the Church Commissioners have returned an average annual return of 8.5%. The comparison of returns between Yale and Church of England are shown below.
The total returns in GBP per annum over different time spans are shown in the graphic below.
The fund has returned above its inflation plus 5% p.a. target in its 3, 5, 10, 20, and 30 year numbers. In the past year (2019), investments in UK equities, global equities and private equity had strong returns. However, after adjusting returns for GBP exchange rate fluctuations, returns in USD are much weaker for 2014 to 2016 and the loss in 2008 is much larger. Asset returns (total fund and by asset class) are listed below.
As stated below, nearly 18% of assets are invested in real assets. The asset classes that are invested in are global equities, UK equities, private equity, commercial property, residential property, rural let land, strategic land, indirect property, and timber. The recent returns for each asset class for different historical time periods can be seen in the chart in the “Performance” section above. The asset allocation as of December 2019 is detailed in the chart below.
According to the Church Commissioners director of investments Tom Joy, the fund is looking to invest in other alternative investments in the future to further diversity their portfolio such as music royalties and direct venture capital deals.
Regarding external manager selection, the commissioners believe that their competitive advantage comes from a very intensive approach to management selection. Most of their managers are boutique rather than household names and they avoid managers with marketing departments. Church Commissioners chooses specialists managers for their specific expertise—choosing a manager as a way to diversify into a certain industry such as emerging-markets or US small cap funds. They look for fund managers who share their investment philosophy, which involves a long-term perspective, sustainability, and a preference for “value” investing.