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Church rejects hypocrisy claims over short-selling

Finance | Ian Allsop | 1 Oct 2008

The Church of England has defended some of its investment policies in the row over short-selling, after several hedge funds accused it of hypocrisy.

Last week the Archbishop of Canterbury (pictured) demanded the practice be banned outright, and the Archbishop of York called traders who undersold shares “bank robbers and asset strippers”.

Short-sellers, particularly hedge funds, aim to profit from falling prices, and have been widely attacked for the fall in shares of banks such as HBOS.

Hedge funds have argued that the main reason prices fell was panic selling by ordinary investors. And a number of hedge funds accused the Church of England (CofE) of hypocrisy by suggesting that it uses some of the same practices with its own investments, including stock lending to cover shorting by hedge funds.

However, a CofE spokesman said: “What the archbishops are talking about is the abuse of short-selling. The government has said that short-selling itself is OK as a financial instrument.”

‘Small’ stock lending programme

Andrew Brown, secretary to the Church Commissioners, admitted that it did have a small stock lending programme. “Stock lending is used for a variety of purposes, not simply to cover shorting by hedge funds. We can assure you that the Commissioners’ stocks have not been used to facilitate the shorting of financially vulnerable institutions in the US and UK, including HBOS. Nor will this happen.”

Figures released earlier this year by the Church Commissioners, who run the CofE’s finances, show the Church made investments last year totalling more than £3.6bn and have achieved an impressive 9.5 per cent average annual return over the past decade.

‘Not short-selling’

The Church Commissioners’ 2007 annual report reveals that the Church paid money to a currency trading firm through a hedging programme managed by Pareto Investment Management. The report states: “With the sharp fall in sterling towards the end of the year, we spent £6m on the settlement of hedging contracts.” However, the Church denied this amounted to short-selling. “The programme we used was as a hedge against currency fluctuations to protect our investments. It was not used to generate revenue.”

It also had £13m invested in Man Group, the largest listed hedge fund manager, at the end of last year. Through the Church of England pensions board, which manages another £847m, the Church also invested this year in a fund from Auriel Capital, a London hedge fund, which aims to make money from currency trading, including short-selling currencies.

A Church spokesman said that while its fund managers were banned from short-selling, the rules do not apply to the firms it invests in.

New prayer for the credit crunch

Meanwhile, the CofE has published a new prayer to help people caught up in the current difficult financial situation. The prayer, at www.cofe.anglican.org/prayers, is one of a range of resources available in an online initiative that has received the backing of the Archbishop of Canterbury, Dr Rowan Williams. He said: “At this time of international financial turbulence, it is important that the Church should be offering the opportunity for prayer and reflection.”

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