The recent global financial crisis revealed some interesting cases of acting on trust. Of course there were the usual number of commercial failures of trust and the courts and the regulators will be working their way through these for some time.
But the crisis revealed some interesting cases which, in the normal run of things, we might not have expected. Long standing institutions run as charities or voluntary not-for-profit organisations were caught napping. Harvard University in the US lost billions, and nearer home St Vincent’s Hospital was reported to have lost a good deal of money. Both these institutions have existed for a long time and their horizon for continued existence is very long term.
That means that those running them must constantly bear in mind that while they may face short-term crises from time to time, their underlying trust is to sustain the institution in a way that looks to that very long-term horizon. Their trust is to contribute to the viability of the institution in the long term.
This is a little more than the kind of fiduciary responsibility of the directors of a public company whose trust is to handle the assets of the company, the property of the shareholders whom there are appointed to serve. The best interests of shareholders might very well be served by a short-term strategy and the realisation of the assets or the sale of the company. With the case of St Vincent’s and Harvard that is almost never going to be the case, even though it might be conceivable in some imaginary sense.
But by far the most remarkable local casualty in this context has been the Anglican Diocese of Sydney. Sydney diocese is the oldest in the country simply because the Church of England came to Sydney with the first fleet. A bishop was installed in 1836 as the bishop of Australia and in 1847 the diocese was divided and he became the bishop of Sydney. The legal basis on which these steps were taken became confused with the coming of an elected local legislature and a constitution for the diocese was established by an Act of the NSW Parliament in 1866. “An Act, 30 Victoria” to enable the members of the United Church of England and Ireland in New South Wales to “manage the property of the said Church under which the Constitutions are made binding for all purposes connected with Church property, 4 October 1866”.
This Act has been amended on a number of occasions and various acts were consolidated in 1917 in a Trust Property Act. This act itself has been amended on a number of occasions. The Act deals with “property held upon trust or for the use, benefit, or purposes of the Church of England in dioceses in New South Wales”.
This Act sets out clearly that the property is held on trust. It is for the sake of the Church. The Act gives some very significant powers to the synod of the diocese to vary trusts upon which property has been held, essentially on the grounds that it has become impossible or inexpedient to apply the property in the terms applying to it. In one sense this is an understandable provision given the long term, indeed in perpetuity, horizon of the life of the church. Some institutions, such as a school or a parish in a certain place, may cease to exist and trusts relating to them need to be adjusted.
The assumption is that the church will go on forever, or at least for a very long time and in the passing of time it may very well outlive other more specifically determined institutions. However, it is not the fact of this power but the apparent extent and generality of the power that stands out. The diocese regularly exercises this power to vary trusts and consolidate or re-direct funds for the benefit of the church generally.
It should be noted here that the total value of the property of the dioceses is vast. If all the churches, rectories, buildings of one kind or another held in trust in this way were added together its value would probably be billions of dollars. These properties, of course, have not been at risk in the recent disaster. But the funds in the endowment of the See (trust money to support the cost of the bishop and senior staff) and apparently some other investments have been at risk.
So here is the problem. The very use of this power, and its regular use by the diocese, underscores and makes manifest the long term horizon of the trust which the diocese is called upon to exercise. In other words the current generation of people running the diocese are but one in a long list of generations stretching back to the earliest endowments of the church in the colony and into the future in perpetuity. Their trust responsibility is not just to this generation, but to future generations, stretching, one presumes, into the great future of Christ’s return, the hour of which no one knows.
This places the investment operations of church property trust in a very distinct light and in some contrast to ordinary commercial investors. The ordinary investor will seek to balance risk and profit according to their personal circumstances, but rarely will look beyond their own lifetime other than to think of leaving some estate to family or others. The investor of long running institutions like St Vincent’s Hospital or Harvard University would normally have a somewhat more risk averse policy because they have a longer term view and have to act so as to protect the reasonable interests of subsequent generations’ interests.
But the diocese of Sydney has a much longer view. A view that reaches into the future in perpetuity. In investment terms this means they should be highly risk averse in their investment actions. Not to do so in order to increase income available to the present generation is to vote for the interests of this generation at the actual or potential expense of future generations.
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