German banks have one group of customers knocking at their doors more often these days: Churches.
The religious institutions are increasingly seeking professional help to manage their assets. On the one hand, low interest rates are weighing on the returns of traditional investments. On the other hand, increased financial transparency has shed light on some investment failures of the past.
Estimates put the wealth of Germany’s churches at several hundred billion euros.
“Churches have become more and more professional in their investments in recent years and resort to professional asset managers like us more often,” according to Martina Erlwein, who caters for church investors at Hamburg-based lender Joh Berenberg Gossler & Company KG.
Daniel Kerbach, CIO at Merck Finck Privatbankiers AG in Munich, has made similar observations: “Churches are one of the really big market participants, they are increasingly using professional asset management.”
Particularly in the current low interest rate environment, a “conventional buy-and-hold bonds investment can no longer achieve a sufficient return," Philip Schaetzle, Head of Institutions & VAG Investors Europe at Metzler Asset Management GmbH in Frankfurt, says.
The result is a broader diversification, for which the churches are now seeking help, he adds.
At the same time, many churches have recently committed to scrutinize their finances and publish detailed reports for the first time. During this process, they have encountered missteps of the past.
One example is the Eichstaett diocese which believes that risky real estate investments have led to losses running into millions of euro. Now, experts are to take care of its money.
Big pension obligations
Although income from Germany’s so-called church tax has risen in recent years, there is the risk of a decline on a weakening economy, which makes investment returns all the more important.
The churches do not only need income for their ongoing operations. As an employer, they also have “considerable pension obligations,” says Eberhard von Alten, Director of Institutional Clients at FERI Trust GmbH.
At the beginning of 2018, he had joined the Bad Homburg-based asset manager from the Mainz diocese, where he had been working as finance director since 2009. “The market volume is difficult to estimate because not all church bodies have fully valued and disclosed their assets."
Carsten Frerk, a political scientist and church expert, tried an extrapolation on the Catholic and Protestant churches in Germany. “On the basis of my own plausible estimates, the two churches, including their business enterprises, have an asset value of around 345 billion euros,” he says
“However, this is without their Caritas and Diakonie organizations, which have a considerable amount of real estate assets.”
This corresponds with comments by Erlwein. “The total wealth of the churches is estimated at a middle three-digit billion figure," she says.
The archbishopric of Munich and Freising is one of the church bodies that already allow a look into their books. As of December 31, it had a balance sheet total of around 3.4 billion euros. In addition to real estate, it also listed financial investments of about 1.5 billion euros.
The archdiocese is indeed working with banks, says spokesman Christoph Kappes. “The collaboration covers all areas of banking services - from payment transactions to investment decisions."
Sustainable investments in demand
The larger the assets of individual churches to invest, the more special are the needs, especially against the background of necessary diversification, according to Axel Rogge, Head of Institutional Clients at Bethmann Bank AG which is part of Dutch lender ABN Amro Bank NV.
“Real estate is being sought, and private equity can also be part of an investment solution, along with trends such as sustainability, which the churches have been been asking us for for a long time,” he says.
Schaetzle confirms that churches are now interested in both liquid and illiquid investments.
“Illiquid investments such as infrastructure, however, are only in demand by very large institutions,” he said. Among liquid assets, equities have become significantly more important in recent years. While churches had almost exclusively invested in the Eurozone in the past, global diversification is now increasingly playing a role, he adds.
Von Alten still sees most church mandates as being "traditional bonds and equities-biased”. Nevertheless, some investors, with the help of external managers, are beginning to gain experience in alternative assets, he says.
“Asset management is not a core expertise of dioceses and regional churches, outsourcing is the rule here. That, of course, is different in the case of church banks and church pension plans,” he adds.