The man responsible for the Church of England’s £6bn endowment has defended plans to increase its investment in hedge funds, arguing that not all of the industry has “devil’s horns”

March 5, 2014 6:50 pm

Blessed be the short sellers, says church

By Miles Johnson and Claer Barrett

The man responsible for the Church of England’s £6bn endowment has defended plans to increase its investment in hedge funds, arguing that not all of the industry has “devil’s horns”.

Andreas Whittam Smith, First Church Estates Commissioner, told the Financial Times that the Church’s own ethical watchdog sanctioned short selling, providing it was done in a responsible way.

“It is ridiculous to think that all hedge funds are wicked,” said Mr Whittam Smith. “Not all have devil’s horns, and we are not indiscriminate. Everything we invest in is run through our ethical investment advisory group and hedge funds, unlike armaments, are not a banned category.”

He added that the group “does not have ethical concerns about short selling per se as an investment practice,” and “did not make an ethical distinction between seeking to profit from a rise in the value of a security as against seeking to profit from a fall.”

This is in sharp contrast to the views of John Sentamu, the Archbishop of York, who attacked short-sellers as being “bank robbers and asset strippers” in the 2008 financial crisis.

The Church’s ethical body has advised that the appropriateness of shorting “depends on the way in which the technique is used”, and has instructed church funds not to invest in managers who make “large directional bets” on a stock’s decline.

During Mr Whittam Smith’s tenure, the Church has become one of the UK’s largest single investors in hedge funds with just under 10 per cent of its assets managed by them. A looming wave of retiring vicars, and an increase in annual pension payouts to about £120m, have prompted a more aggressive investment strategy.

The Church‘s strict ethical investment policy dictates that all holdings should be compatible with Christian values. Among its larger hedge fund investments is Bridgewater, one of the world’s oldest and largest hedge funds running $150bn through strategies including short selling. The Commissioners said they had assessed the fund’s short selling practices before investing, and were satisfied that it was being done responsibly in a way which did not cause harm to companies.

Bridgewater also makes multidirectional bets on commodities and currency markets. Mr Whittam Smith has spoken out previously about the moral complexities of both speculating on currencies and commodities, and investors taking advantage of companies in trouble. “We take care neither to be party to pushing movements in commodity prices further than they would otherwise go, nor to engage in similar movements in currencies,” he said in the Church Commissioners’ annual report for 2010. “We must also avoid putting undue pressure on companies that may be in difficulties”.

Bridgewater, whose billionaire founder Ray Dalio has generated returns of $40bn since starting his fund in 1973 according to a recent survey by LCH Investments, declined to comment on the Church’s holding.

The Church is also an investor in Ruffer

, a UK fund describing itself as a discretionary investment manager, which does not engage in shorting equities, but holds some investments in commodities markets. Ruffer declined to comment.

Despite the ethical complexities of the move into alternative investments, the Church endowment has performed very strongly over the last two decades exceeding its aim of returns of 5 per cent above inflation over 20, 15, five, three and one year timeframes.

Last year, the Church was embarrassed after Justin Welby, Archbishop of Canterbury, publicly attacked the UK payday lender Wonga, only for it to emerge that the Church Commissioners held an indirect stake in the company, which it will sell.

Last month, its Ethical Investment Advisory Group concluded that “investment portfolios will never be pure . . . ethical ambiguity is intrinsic to life,” arguing that the best course for the Church was to serve as an active and engaged investor in financial markets.

Reaction to the Church’s plans to increase its investment allocation to hedge funds and private equity groups were mixed.

The news, wrote former Labour party minister Denis MacShane on Twitter, confirmed the veracity of Karl Marx’s famous attack on the established church. Referring to the Church of England’s founding statements of doctrine, Marx wrote: ‘The Anglican Church would rather give up all 39 articles than one 39th of its wealth”.