Inside Vatican bank’s listed investment portfolio
The net result of Vatican's Instituto per le Opere di Religione (IOR) for 2020 reflects “a prudent approach in the management of proprietary investments, largely composed of high quality fixed income assets equally split between sovereign and corporate sectors,” its 2020 annual report, released on Friday, stated.
IOR said it held €5bn in client assets at the end of 2020 with religious orders forming half of the client base. The net value of assets held in managed portfolios was €2.8bn (vs. €2.9bn in 2019) and the net value of assets held in non-managed portfolios was €464.3m (vs. €500.6m in 2019).
Overexposure to debt
Bonds, worth €2.4bn in total, were the most significant investments, representing 96.6% of the securities held by the Vatican’s bank as of 31 December 2020, while equities accounted for 1.7%, and investment funds for 1.7%.
Debt held by IOR had an average duration of 2.76 years and high credit standing (99.8% investment grade). The €2.4bn bond portfolio is composed of government bonds issued by major European countries (core and peripheral) by the US government and residually by non-OECD countries, as well as financial and corporate bonds.
In terms of equity exposure, Italy remains the market to which IOR is the most exposed before the UK, Germany and the US (the New York Stock Exchange). According to the Vatican bank’s report, it is not exposed to the Nasdaq index and has no shares in public companies listed on Euronext Paris.
As of 31 December 2020, IOR had €42.5m plugged into investment funds, of which two open-ended funds, invested in emerging and developed market equities, accounted for €30.6m and closed-end funds, almost exclusively invested in real estate, for €11.9bn. IOR said it did not provide any guidance to these funds on their investment policies in 2020.
IOR does not hold any exchange-traded funds nor derivatives. Also, the report suggests it does not invest in hedge funds or funds of funds.
The Christian challenge
Regarding its 2021 priorities, the IOR cited positioning itself as the financial institution reference for the Catholic community worldwide, increasing its market share, strengthening and structuring the asset management offering through a “prudent, transparent and scalable investment process.”
IOR’s plan also implies optimising management of IOR assets (proprietary portfolio, pension fund, credit, real estate investments) through defined policies, tools and investment processes while another focus is on strengthening risk management and compliance.
In 2020, “adherence to Catholic consistent investment criteria” was further enhanced and monitored, the report mentioned. “A concern that has guided activities in recent years has been to focus attention and efforts not just on profit but also on how such profit is obtained, thus conforming increasingly to ethical investments in line with Christian teachings. Undoubtedly, this way of operating has reduced the Institute’s economic strength and may have suggested an exaggerated degree of prudence rather than unproductive ethics. This I do not believe,” commented Prelate Msgr. Battista Mario Salvatore Ricca.
IOR relies on positive screening criteria (Best in Class, Impact Investing and Sustainability) and negative screening criteria to assess whether its investments respond to its ethical criteria.