When she was crowned 60 years ago, the Queen's annual stipend received from the Duchy of Lancaster was £110,000. Last year, the Duchy paid out £13.3m of its income to the Privy Purse, which is used to fund the activities of the Queen and a number of other working royals. Not even the Queen is immune to the withering effects of austerity. But she is a little more insulated than the man on the street. Her income last year was virtually unchanged from the previous year, reflecting the tough economic times we are living through. But how does she come by this income? And who invests on Her Majesty's behalf? We met the chief executive of the Duchy of Lancaster, Paul Clarke, to find out more.
How it works
The Queen has a vast portfolio of property and assets of her own, but her annual income comes from an even more valuable portfolio of assets, under the aegis of the Duchy of Lancaster, which is held in perpetuity for the benefit of the monarch of the day.
Much of the Queen's personal net worth of £310m or so is bound up in assets such as the estates at Sandringham and Balmoral and a host of smaller properties including houses and stud farms. She also has extensive personal art, jewellery and stamp collections as well as an investment portfolio.
But the Queen's personal portfolio is not terribly liquid and her annual costs and those of some 'working royals', but not the Prince of Wales and his family, are funded from the Privy Purse, which in turn is funded by income from the Duchy of Lancaster.
The effect of the financial crisis on the Duchy's capital value over the past five years is evident, but less so on its surplus, which has grown in all but one year.
The Duchy of Lancaster was established in the 13th century and its raison d'être remains to provide income to support the monarch of the day. It remains separate from the Crown Estate, whose profits go to the Treasury, and the Duchy of Cornwall, which supports the Prince of Wales and his family. The Duchy of Lancaster owns 18,200 hectares of England and Wales with a concentration of agricultural land in Lancashire, Yorkshire and Cheshire and commercial property assets in several towns and cities.
Income from this vast estate is given to the Queen each year in the form of a stipend which last year totalled £13.28m and was largely unchanged from the previous year. Operating income from the estate bounced back in 2011 compared with the tough previous year. The estate itself saw its value rise by around 10 per cent to £383.2m during the year to March 2011 and since then is likely to have seen this value rise to around £400m. This would represent a recovery to the valuation the portfolio enjoyed in 2007 before the financial crisis struck.
The Duchy of Lancaster has been run by Mr Clarke since 2000. Mr Clarke charged himself with modernising the Duchy when he took over, describing it as "a shift in emphasis to a commercial approach". He did this by outsourcing management of various elements of the portfolio to professional asset managers and "downsizing" the Duchy's own staff and role in the running of the portfolio. Professional property fund managers run the different agricultural and urban estates and the investment portfolio is managed by Newton Investment Management.
And the approach appears to have worked. Since 2000 the Duchy's capital value has risen by 88 per cent and the income generated, which is what the Queen receives, has grown by 110 per cent. Mr Clarke describes the Duchy of Lancaster as "a perpetual trust with some facets of a pension fund".
There is one major check and balance on the Duchy's investment style. Investments are being made not only for the Queen but also in the Queen's name; hence the need for a certain element of paternalism. But Mr Clarke has brought a modern edge to the Duchy, and his managers will encourage tenants to think about moving on if they feel the assets are not being worked hard enough. The Duchy even has some venture capital money available which it is willing to invest with its tenants in new business ideas.
Portfolio construction
The portfolio is split into three distinct areas, the first being agricultural land, which encompasses the Lancashire, Yorkshire, Crewe and South and Needwood 'surveys'. This portfolio is typically low yielding, around 2-2.5 per cent, but has in recent years enjoyed a significant rise in capital values. There has also been a strategic shift by management towards better grade agricultural land.
The traditional Duchy land is typically dairy grazing land and, with an eye on long-term trends, management wants to add more high-grade arable land such as that acquired in Lincolnshire recently. There is also an element of development in the agricultural portfolio, but it tends to be small scale. The rural property portfolio was valued at £202m in March 2011.
The urban property portfolio or 'survey' is what Mr Clarke describes as "generic commercial property", chiefly offices and industrial with very little retail, and was valued at £146m in 2011. This is geographically spread with the Savoy Estate being the jewel in the crown. This is a block of property around the Strand and Embankment in London, although not including the Savoy Hotel. This portfolio typically yields around 5 per cent.
Thirdly, the Duchy's investment portfolio is spread across equities, fixed-interest, investment trust and venture capital investments. The investment manager is only allowed to invest in companies from England or Wales. It could use indirect investment vehicles to invest further afield but has not historically done this. The Queen is aware of her portfolio performance, according to Mr Clarke: "She is well aware of what we are doing, she always wants to know how businesses are doing."
At the end of the year to March 2011, it was worth £62m and yielded income of 4.7 per cent. Typically, the investment portfolio has been used to provide liquidity when the Duchy wants to make an investment in property but Mr Clarke said: "It is a successful income generator and it makes it difficult when looking at property yields; it gives us a dilemma".
The portfolio is actively managed, as illustrated by the switch during the 12 months to March last year from safer fixed-income investments into equities. In fact, the equity portfolio nearly doubled in size to £47.7m while the fixed-interest portfolio shrank from £20m to £4.3m. But this shift has reversed somewhat during the past year, according to Mr Clarke, giving the portfolio more balance. The portfolio also has around £8m of private equity investments that date back to the early 2000s.
Despite being a 'steady as she goes' portfolio, Mr Clarke is fully aware of themes emerging in modern Britain and investments the Duchy is making, such as the new agricultural land bought in Lincolnshire recently, are made with an eye on a growing demand for traceability of food, sustainability and self sufficiency. He is also aware of the potential underground on the Duchy’s vast acreage. In North Yorkshire, Duchy land near Whitby, where Aim-traded Sirius Minerals has huge mine development plans, has potash potential. In Lancashire the private shale gas explorer Cuadrilla has identified potentially enormous shale gas reserves which could include Duchy land and a company is exploring the potential for gas storage in the River Wyre area, also near Blackpool.
How the Duchy has fared over the past five years
| Year | Capital valuation | Growth | Surplus | Growth |
|---|---|---|---|---|
| 2007 | £398m | 16.60% | £11.8m | 10.70% |
| 2008 | £399m | 0.20% | £12.7m | 7.50% |
| 2009 | £323m | -19.10% | £13.3m | 5.40% |
| 2010 | £348m | 7.90% | £13.2m | -0.10% |
| 2011 | £383m | 10.00% | £13.4m | 1.30% |
| Source: Duchy of Lancaster | ||||
