Hedge fund investments defended
ANDREAS WHITTAM SMITH, the First Church Estates Commissioner, has defended the Church of England’s increased investment in hedge funds following revelations in the Financial Times that the Church is now the UK’s 15th largest investor in such funds with 10 per cent of its assets managed by them.
Hedge funds have existed for many years but have become increasingly popular. They are available only to certain accredited investors and cannot be sold to the general public. As a result, they avoid most direct regulatory oversight and licensing requirements applicable to normal investment companies and are able to operate with great flexibility. They are administered by a professional management team and members of the team usually invest their own money in the fund.
Some hedge funds practice ‘short selling’, which involves the practice of selling securities that are not currently owned by the fund and subsequently repurchasing them. In the event of a fall in price, the fund will benefit.
According to the Financial Times, the Church of England has some of its largest investments in Bridgewater, one of the world’s oldest hedge funds, that uses short selling as one of its strategies.
In the past the Archbishop of York has condemned short selling but the Commissioners say they have examined Bridgewater’s practices and are satisfied that short selling was being done in a responsible way that did not damage companies. Bridgewater also makes multidirectional bets on commodity prices and on currency markets.
Mr Whittam Smith told the Financial Times that the Church of England ethical advisory group had sanctioned short selling provided it was done in an ‘ethically responsible way.’
“It is ridiculous to think that all hedge funds are wicked,” Mr Whittam Smith told the newspaper. “Not all have devil’s horns and not all are indiscriminate. Everything we invest is run through our ethical investment advisory group and hedge funds, unlike armaments, are not a banned category.”
He also claimed that the ethical advisory group ‘does not have concerns about short selling per se as an investment practice’ and that it ‘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’.
Mr Whittam Smith said the Church tried not to be a party to pushing movements in commodities and currencies ‘further than they would otherwise go’ and that it did not take advantage of companies in trouble.
The Church Commissioners suffered a £1 billion loss during the 2008 financial crisis but their investments have since bounced back. They aim to achieve an annual return of five per cent above inflation, a target they have usually reached. Investment in hedge funds brought a return of 5.9 per cent in 2012.