The Church Commissioners – the investment arm of the Church of England – have announced returns of 14.4% on their £6.7bn (€9.3bn) portfolio for 2014.

Slightly lower than the 15.9% delivered in 2013, the return is still well ahead of the fund’s target of inflation plus 5%.

The endowment fund – which helps finance the Church’s activities, as well as pensions arising from pre-1998 service – revealed that the star performer was property, delivering an overall return of 27%, with double-digit returns across all sectors.

Returns came predominantly from capital growth, including realised gains on sales. 

The Commissioners attributed this to taking a truly long-term approach and having stewardship of
 a well-diversified and high-quality set of investment property portfolios.

Commercial property (4.7% of assets) returned 48.3%.

A landmark transaction was the sale of a 64.2% beneficial interest in the Pollen Estate, Mayfair, London, to Norges Bank Investment Management and The Crown Estate for £381m, the Commissioners’ biggest-ever property deal.

Strategic land – which provides development opportunities and makes up 2.3% of the portfolio – delivered 23.4%, while indirectly held property (4.7% of the portfolio) returned 18%, largely from care home investments in the UK and real estate holdings in the US.

Meanwhile, equities performed less strongly than in 2013, returning 7.8%, although this was still ahead of the 6.8% benchmark.

Returns were, however, helped by a bias towards global markets away from the UK – 10.9% of assets in domestic, compared with 24% in global equities.

Global mandates returned 11.2%, compared with 0.7% from the UK holdings.

The endowment fund used market strength to take profits from its global holdings, adding to defensive equity.

A specialist smaller company manager was added in Brazil, after a period of significant weakness in that market.

Private equity, however, made 15.8%, and the Commissioners plan to expand the fund’s 3.7% allocation over the next few years.

Fixed income, which includes investments in US high-yield bonds and emerging market debt, returned -0.5% in 2014.

The portfolio was reorganised during the year to protect it from a changing interest rate environment, and the low weighting will be continued.

However, the private credit portfolio, started in 2012, returned 10.2%.

In 2014, exposure was increased to seek higher returns and better diversification.

Exposure was also increased for timberland and forestry, which delivered a total return of 22.3%.

Timberland purchases in Australia, the US and the UK made the Commissioners the largest private owner of forestry in the UK.

The Commissioners have also published a responsible investment review, setting out progress made in their socially responsible investing.

There are already investment exclusions such as arms, pornography, gambling, tobacco and high interest-rate lending, and certain restrictions have recently been introduced for investing in companies active in the alcohol industry.

The Commissioners are also an influential member of the “Aiming for A” investor coalition, which led a successful bid to obtain increased disclosure from BP on its climate change strategy at the company’s AGM last month.

A similar resolution will be proposed at Royal Dutch Shell’s AGM next Tuesday.

At end-2014, £299m (4.5%) of the Church Commissioners’ fund qualified for inclusion in the Low-Carbon Investment Registry maintained by the Global Investor Coalition on Climate Change, including £253m in sustainably certified forestry.

A further £284m (4% of assets) is in listed equities run by Generation Investment Management, co-founded by former US vice-president Al Gore, all of whose investments must meet sustainability criteria.

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