Concerns raised as Church allowed to invest in derivatives
NEW LAWS confirming that the Church Commissioners and Church of England Pensions Board can enter into derivative contracts have been approved by the House of Lords despite some objections from a Conservative peer.
The derivatives power was included in the Church of England (Miscellaneous Provisions) Measure, which included a string of changes to Church law and introduced in the Lords by the Bishop of Oxford.
Bishop John Pritchard said: “The need for this provision has arisen because in recent years both bodies have had increasing difficulty in persuading potential counterparties that they have the necessary powers to buy derivatives.
“It is important to say that neither body proposes to speculate in derivatives; they wish to use them purely as a way of managing risks arising in their investments - for example, by hedging against changes in interest rates. This does not represent a shift in investment strategy but an enabling of it.”
Conservative peer Lord Elton pointed to the “catastrophic” results of derivatives composing “third-rate American mortgages”.
He said: “It very nearly destroyed the whole world’s banking system and did a great deal of harm to a great many people.
“Those were wise, experienced, sensible people - at least, a large number of them must have been because there were so many.
“It is no reflection on the financial abilities of the board, the commission and their advisers to say that these things can be very dangerous. It is rather like going into a shop where there is a basket full of toys, but one or two of them are hand grenades. The great danger is that people do not spot the difference.
“Although one is reassured by the undertaking given in the discussion of the Measure before the Ecclesiastical Committee that the Church’s representatives will never deal in instruments that they do not understand, one must recognise that the bankers of the world could have said exactly the same thing a week before they actually caused the catastrophe.
“I am saying this because, if a measure is proposed within the Church of England to avail itself of that extension, I hope that this warning shall be read by those doing so, so that they will be reminded of what these things can do and treat them with very great care.”
But Bishop Pritchard told him: “It is as well to be clear what we do at the moment - what the Church Commissioners, for instance, are using derivatives for.
“They use them for three things: the hedging of foreign currency, the hedging of interest rate risks and as a means of taking shares in particular companies - preparation for buying equities themselves. So they make very limited use of derivatives. They are certainly not in the business of speculation.”
He said there were “reasonable safeguards” and controls by the Charity Commissioners.
The measure also allows for the Lady Margaret Professor of Divinity at Oxford – a post once held by former Archbishop of Canterbury Rowan Williams – to be a lay person.
Labour peer Lord Williams of Elvel, who is the stepfather of the current Archbishop of Canterbury, said his father had held the post.
“It has been a distinguished post in the history of Oxford, of Christ Church and of divinity and theology,” he said.
“It is, in a way, a sad obituary for something that was set up and operated so well in so many theological contexts. It allowed professors to deliberate and preach in the security of the residence of Christ Church. It is a pity that it should go. However, there it is. As they say, the caravan moves on.”
But he asked what would happen to the “rather attractive priory house where my father lives and I was brought up”.
Bishop Pritchard told him the change was a sign that “good theology is now much more broadly spread across the population” and was “not just an ordained preserve”.
But he said lay as well as ordained theologians could live in the house.