2011 Annual Report - St John's in the City

38
Investment Advisory Committee
About two thirds of the St John’s Parish income
comes from the Capital Trust Fund. The Fund
was established in 1987 and, at its inception, the
members of St. Johns made a prudent and visionary
decision that the capital value of the Fund should be
increased in line with the change in the consumer
price index thus preserving in perpetuity the true
earning capacity of the Fund. As a result the Fund
has grown from $7,038,000 in 1987 to $13,479,728
at the end of the current year. Full details of the
Fund’s financial performance can be found in the
accounts.
The Fund is invested substantially in secure fixed
interest bonds. Unfortunately the interest rates for
such bonds is at historically low levels compared
with the interest rates that prevailed a few years ago.
When bonds mature it is not possible to reinvest
the proceeds at the high interest rates that were
previously being earned and this will have an adverse
impact on the Fund’s earnings in future. Income
will hold up reasonably well for the balance of the
2012 financial year but by the end of 2012 the full
effect of lower interest rates will be evident. Bonds
maturing in 2012 have an average interest rate of
8.1% and, although it is hoped that interest rates will
have increased by then, it seems unlikely that they
will be as high as 8%. Furthermore many economists
expect inflation rates to increase in the medium term
and if this should happen an increased proportion of
the Trust Fund income will be required for inflation
indexation thus reducing further the amount of
money available from the Fund.
Professional fund managers expect that in the longer
term investments in growth assets such as shares
and property will show enhanced returns compared
with bonds but the volatility of such assets severely
restricts the amount of money that can be invested
in them because a reduction in value could make
it difficult to inflation index the Fund. Investment
in growth assets can only be made when there are
sufficient reserves to cover any loss that might be
incurred. The Trust Fund has limited reserves but
this year we have increased our exposure in such
assets by investing in a conservatively managed
socially responsible New Zealand Equity Fund
and an indexed Australian Share Fund. Both
investments have been selected because of their
diversity and low fees. Any reduction in the reserves
will require these growth investments to be sold thus
reducing not only the amount of money invested but
also the overall investment yield from the Fund.
Peter Isherwood
Chair