The Retired Investor: Turning Around Finances of Vatican's Holy See a Difficult Task

As America's Pope Leo XIV  begins his reign at the head of the world's smallest country, this Catholic sovereign city-state's financial and economic challenges wait to be addressed. It may take more than American ingenuity to accomplish that.

 

Located in Rome, the Vatican encompasses 110 acres with a population of under 1,000 souls. However,  despite its size, the Vatican has had an outsized impact and influence on the financial world thanks to its investments in real estate, banking, and private enterprises.

 

Those new to the inner workings of the Catholic Church should know there is a difference between the Vatican and the Holy See. The Vatican is the physical area where the Holy See resides. The Holy See is the governing body of the nation. If you were to enter a financial contract with the territory, it would be with the Holy See.

 

The Holy See generates revenues from a variety of sources. It collects donations from the faithful worldwide (called Peter's Pence, a term dating back to the 8th century), as well as from interest and investments. Many of its investments are in real estate, where it holds land and churches around the globe.

 

Historically, the Holy See has primarily invested in Italian industries but has kept its stakes below 6 percent. Over the years, it has also expanded purchases overseas, but always in proven companies within strong industries. It also invests in stocks and bonds where it takes a long-term, buy-and-hold investment philosophy. However, as a faith-based entity, it will not make investments in companies that go against church values.

 

In contrast to the Holy See, Vatican City derives revenues from a few small industries. It employs a labor force of 4,800 people who interact with millions of tourists annually. These travelers visit the Vatican, its museum, the Sistine Chapel, and St. Peter's Basilica. The Vatican is thought to do a thriving business in admissions and sought-after sales of stamps, coins, and publications. How much exactly is a tightly kept secret.

 

Finally, the Institute for the Works of Religion, known as the Vatican Bank, rounds out the church's financial picture. Pope Pius XII founded this private bank in 1942. It has been the most controversial of the church's assets, plagued by scandal, accusations of mismanagement, money laundering, and fraud. 

 

In 2022, Pope Francis tried to clean up the bank's tarnished image. He strengthened the bank's role as the exclusive manager of the Holy Sees's financial assets and connected institutions. He followed that up in 2023 by overhauling the Vatican's oversight, auditing, and supervision functions of the bank and its employees. In 2023, the bank claimed $33.2 million in income and managed $5.9 billion in client assets.

 

It wasn't easy, and he fought every step of the way from within. The specifics of the church's finances have always been shrouded in secrecy, even from the pope himself, and tradition is difficult to change, especially within the church hierarchy.

 

Pope Francis hired outside managers to circumvent those barriers and implement his reforms. Most of these hires have since resigned, stymied by roadblocks thrown up within the church bureaucracy.

 

Next week, we will examine the state of finances within the Catholic Church today and the challenges the new pope will need to overcome to win the day for his worldwide congregation.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.