CIO: Given your 17.1% returns
following the post-Brexit referendum,
in looking to the future given Brexit
negotiations are still in process, what is
your advice to other CIOs on investing
in the post-Brexit environment?
Joy: Many factors, not just sterling
weakness (which added about 4% to
our overall return), contributed to a
very strong return. My advice would
be to be genuinely diversified, to be
defensively positioned (i.e., not at
the top end of their risk spectrum—
although the vast majority of institutional investors appear to run with
static asset allocations despite widely
varying opportunity sets/risks, we
don’t do that), not to bias the portfolio
based on a view on Brexit (as no one
really knows how it will go), and to be
active, not passive.
CIO: Your portfolio has returned 9.6%
on average for the past 30 years. What
are the top three things you think
are key to managing a successful
Joy: I would say that the key pieces of the jigsaw are simple to
identify, but often not easy to implement, most often because
of poor governance. I would suggest:
• High quality and appropriate levels of internal
resources at the executive level and trustee level. At a trustee
level, ensure you have the right balance between stakeholder
representation and investment expertise.
• A clear and disciplined process focused on the needs
of the individual organization, but essentially price-driven.
• A willingness to be different—tread your own path
unfazed by what other peers are up to.
CIO: Your timber investments have returned 15.4% over the
past five years, and you’re now one of the largest owners of
forest land in the UK after the Forestry Commission. What
do you look for when you seek a forestry investment?
Joy: When we decided to invest in forestry in 2010, it was to
diversify our farmland holdings, which have compounded at
over 15% p.a. for more than 10 years
and form almost 10% of our aggre-
gate fund. Every week, we were seeing
articles in the Financial Times about
farmland being an attractive place
to invest globally. However, to us, it
was expensive, whereas forestry was
much more attractively priced—and
in fact, in some areas, we were seeing
forestry land being turned into farm-
land. Whenever you see that, given
the costs involved, the relative pricing
is out of line.
As I described earlier, the over-riding determinant of our decision to
buy an asset is its price.
We are very happy with our
overall forestry weighting, and are
not particularly looking to add—in
fact, we are hoping to take profits on a
small holding in the US. Other factors
would be the age profile of the forests,
and how that complimented holdings,
proximity to mills, etc.
We have a strong preference
for developed markets. A lot of other
investors have gone for emerging markets, but in our view,
they underestimate the operational challenges/risks and costs
of getting trees to the mill for processing, which can impact
returns materially. So we only invest in the UK, US, and
Australia, and this has served us well.
We originally were unsure if we could access the UK
market, but there have been two large £50m-plus transactions in the last few years, and we were able to buy both at
what has been attractive valuations.
Sustainable forestry is key to our strategy, and hence
we also take the certification of our forests seriously so as to
ensure that they are managed in a sustainable and ethical way.
CIO: Your private credit and private equity investments
have returned 33.1% and 26.1%, respectively. Given the
demand for these asset classes, can you share details of your
strategy? Outside of performance, what characteristics do
you look for in your GPs? Going forward, are there certain
sectors/geographic locations you are currently focused on?
#38 Tom Joy, Director of Investments,
Church of England (page 27)
Making high post-Brexit returns in forestry, private credit and private equity investments
Tom Joy, DI, Church of England