Timber elevates $10.3bn Church of England fund

The Church of England’s timber portfolio was a top performer within its £7.9 billion ($10.3 billion; €9.2 billion) investment fund in 2016, delivering a 24.3 percent return compared with the fund’s 17.1 percent total return, according to the Church Commissioners annual report.

The report shows that timber returns were the fourth best performing asset class behind private credit (33.1 percent), global equities (32.9 percent) and private equity (26.1 percent).

“Since we began investing in global timberland markets five years ago, we have built a high-quality portfolio of over £360 million,” the commissioners wrote in the report.

The timber portfolio represents a 4.8 percent asset allocation, covering 120,000 acres in the UK, the US and Australia. Its holdings include UK Timber; Cherry Tree Timber and Lambeth Tree in the US; and Jhar Tree Timber in Australia. In 2016, the Church also acquired a single investment in Scotland totaling 147 acres adjoining an existing property holding.

The report shows that timber returns have grown steadily since the fund first began investing in the sector globally five years ago, returning 19.5 percent over three years, and 15.4 percent over five years.

That track record has markedly outperformed the fund’s rural property portfolio (8.8 percent of the fund’s asset allocation), which has returned 14.4 percent over the past 20 years but has steadily declined in performance since then, returning just 9.5 percent in 2016. (See chart for historical performance by asset class.)

The report stated that in 2016 its managers “worked with our tenant farmers to further improve the holdings through investment and restructuring, exploring value-adding opportunities, and completing a number of purchases and sales across the portfolio.”

“We also focused our investment in a number of key areas, including water management, horticulture and agricultural infrastructure,” the authors wrote. “We continued to investigate suitable alternative land uses for some sites, including the change of use of some dilapidated traditional farm buildings to residential dwellings.”

As part of its initiative to comply with the climate change agreements under the Paris Agreement, the commissioners said “investments in developed market equities (including UK equities) were expected to be negatively impacted by a rapid transformation of the economy, but this was offset considerably by the positive expected impact on returns for emerging market equities, real estate, timber and infrastructure.”

The fund’s overall target is inflation – which was 2.5 percent in 2016 – plus five percentage points. “We were well ahead,” the commissioners said.