Church of England endowment restores faith in PE

The Church of England’s investment fund is raising its target allocation to private equity and will do so only through “world-class managers”, a spokesman has told Private Equity International.

Church Commissioners, which manages the church’s £8.3 billion ($11.2 billion; €9.4 billion) investment fund, had a 4.7 percent allocation to the asset class as of 31 December, up from 3.9 percent the previous year, according to its latest annual report. It made £129 million of commitments in 2017, a 15 percent increase from the £112 million committed in 2016.

“Private equity is something we want to grow to something above our current allocation, but we will only do so when we are confident that we have the best managers in place,” the spokesman said. “Private equity is a very heterogeneous asset class and if you can’t access world class managers you shouldn’t do it, you’re better in the public markets. [We] will only grow it if we can access the very best managers.”

Not all institutional investors are comfortable with private equity. At a Pensions and Lifetime Savings Association Investment Conference in March, Private Equity International found that many of the pension fund managers, trustees and advisors in attendance viewed private equity as one of the least attractive illiquid asset classes, amid complaints over a lack of transparency, liquidity issues and uncertainty over how private equity would fit in with the ongoing UK pension pooling.

Church Commissioners decided to target more direct relationships and focused on a select group of the strongest performing private equity and venture capital managers last year. It made its first commitment to one of the target managers in December expects to make more this year and further ahead, the report noted.

The endowment’s private equity portfolio returned 7.2 percent last year as the pound rallied against the US dollar, the report noted. In 2016 and 2015 the private equity portfolio returned 26.2 percent and 20.2 percent respectively.

The Church of England has reason to be cautious about the asset class: in 2013 it launched a review of its entire private equity portfolio following the revelation its investment with venture capital firm Accel Partners included an indirect investment in payday loan provider Wonga, which the church previously criticised for social reasons. It exited the stake in July 2014 at no profit.

The controversy led to a number of ethical investment changes, including tightened investment restrictions for direct transactions and the introduction of a responsible investment position.