acf investment webinar: coronavirus context · spending rules check spending rules review spending...

ACF Investment Webinar: Coronavirus Context

ACF is grateful for the ongoing support of our Official Partners and for their expert input into these webinars

WELCOME AND INTRODUCTION

Please submit questions for the presenters via the Q&A function.

CHAIR:Gail Cunningham, Head of Investment Learning, ACFGail leads ACF’s investment learning programme, including activity related to the Stronger Foundations investment strand, the Social Impact Investors Group, and sharing expertise from ACF’s Official Partners with members.

Introduction to your hosts …

TECH HOST:Rachel Garner, Partnerships Manager, ACFRachel is responsible for overseeing ACF’s Official Partner Programme, additional commercial relationships, and supports Gail with the Investment Learning Programme.

Reach out to her via the chat function with any technical questions.

House Keeping and Ground Rules…Questions to be submitted via the Q&A function

Any technical issues please flag via the chat function

No such thing as a silly question!

Matt Cox, Investment Director, Esmée Fairbairn FoundationMatt joined in 2013 and is responsible for overseeing the performance of the Foundation’s investment portfolio. He is a CFA charterholder and manages the day-to-day relationship with our investment advisors as well as leading on issues related to responsible investing. Before joining the charitable sector, he spent fifteen years in the investment management industry as an analyst and portfolio manager, managing a variety of portfolios for pension funds, individuals and charities. He is also a trustee of a small community music charity.

Send in questions for Matt via the Q&A function.

Introduction to your presenters …

Nathalie Degans, Senior Consultant Director, MercerNathalie is a Senior Investment Consultant within Mercer's Fiduciary business and is part of the Investment Solutions Client Team. She joined in September 2019 and is based in London. Nathalie has over twenty years of investment experience. She was an equity fund manager at Morgan Stanley Asset Management for 15 years, managing an International Small Cap fund and then a Global Income fund, before moving into wealth management ten years ago. She has since worked at Coutts and Cambridge Associates where she managed customised, multi-assets, portfolios for HNW and UHNW clients as well as for endowment and foundation organisations. She is a graduate from INSEAD, holds the Investment Management Certificate and is a qualified Level 6 financial advisor.

Send in questions for Nathalie via the Q&A function.


Contact: [email protected]

mailto:[email protected]

welcome to brighter

COVID-19

Endowment & foundationrisk mitigation checklist

ACF Investment Webinar

6 May 2020

The story in pictures

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Copyright © 2020 Mercer Limited. All rights reserved.

Equities

8

40000

45000

50000

55000

60000

65000

31/12/2019 31/01/2020 29/02/2020 31/03/2020 30/04/2020

MSCI EM

MSCI Emerging Markets

Data to 30 April 2020.Source: Datastream. Returns based on price indices based in local currency except MSCI World which is based on US dollar returns.

1500

1750

2000

2250

2500

31/12/2019 31/01/2020 29/02/2020 31/03/2020 30/04/2020

MSCI World

MSCI World

60

65

70

75

80

85

90

95

100

105

110

31/12/2019 31/01/2020 29/02/2020 31/03/2020 30/04/2020

Global Equity Markets

FTSE 100

S&P 500 Composite

EURO STOXX 50

Nikkei 225

0

10

20

30

40

50

60

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90

31/12/2019 31/01/2020 29/02/2020 31/03/2020 30/04/2020

Vix Volatility Index

CBOE Volatility VIX

Risk mitigation checklist

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POTENTIAL ISSUE ASSESSMENT METHOD POSSIBLE MITIGATING ACTIONS

Assets fall out of line versus strategic benchmark

Review asset allocation against strategic benchmark

▪ Rebalancing dependent on risk tolerance▪ Consider out of market risks and costs when considering

whether or not to transition assets

Market distortions Monitor market conditions (see governance)

▪ Take advantage where risk tolerance and governance is sufficient ▪ Revisit currency hedging policies in light of moves in Sterling

Sale of assets at depressedprices to meet cashflows

Review short-term cash requirements against projected cash inflows

▪ If asset sales are necessary, consider liquidity and transaction costs

▪ Consider appropriateness of short term funding options available – e.g. government schemes or other credit facilities

▪ Hold ad-hoc cash buffer

Spending rules Check spending rules

Review spending rules

▪ Understand flexibility to increase spending to meet demand or to smooth out impact of reduced asset values

▪ If spending rule is outdated (e.g. due to reduced real return expectation) then a review may be appropriate.

Strategy and investments (part I)



Potential falls in dividends and other investment income

Consider the impact of such falls on income and therefore spending

▪ Update financial forecasts▪ Is there scope to revise spending approach from income to total

returns?

Planned strategic changes no longer appropriate

Reconsider planned strategic changes in light of current market conditions

▪ Potentially delay planned actions

Longer-term strategy implications

Compare forward looking investment return expectations with spending targets.

Explore new considerations/priorities for spending and investment in light of COVID-19

▪ Revisit investment strategy to ensure it remains consistent with long term objectives

▪ Ensure spending rules are aligned with investment strategy and expected return.

▪ Consider the impact of COVID-19 on your organisation’s ethical/responsible investing approach – e.g. scope to consider new areas of social impact?

▪ Revisit private market commitment planning analysis

Strategy and investments (part II)


Operations


Administrative disruption Observation of widespread illness / absences Business continuity issues

▪ Engage with key colleagues and providers on contingency planning

Investment operations disruption ▪ Query specific contingency plans from investment managers, custodians and other service providers

▪ Undertake operational assessments ifnecessary

Issues obtaining signatories and/or other instructions

▪ Query ability of investment managers,custodians and other service providers to accept instructions electronically

▪ Check authorised signatory lists are up-to-date

Disruption of time sensitive / critical projects ▪ Review cases, identify critical roles and consider contingency planning


Governance


Illness / unavailability Key personnel unable to attend meetings ▪ Use technology to mitigate absence (video or conference calls with training on effective virtual meetings)

▪ Review upcoming meetings▪ Ensure all delegated responsibilities are

clear and understood▪ Review policies for decision-making and

meeting powers e.g. check quorum for meetings and ensure meetings can be held electronically

Inability to continue to govern effectively Reduced functionality as key persons becomeill or isolated

▪ Consider appointing a reserve chair▪ Amend governance documents as

required e.g. to ensure Terms of Reference reflect correct processes

Unable to respond quickly Opportunities to respond to market distortions are missed

▪ Consider delegating responsibility to emergency response committee

▪ Pre-agree actions for potential scenarios in advance

Longer-term governance considerations Preparing for the next “Black Swan” event ▪ Stress-testing and scenario analysis▪ Contingency planning


Important notices

References to Mercer shall be construed to include Mercer Limited and/or its associated companies.

© 2020 Mercer Limited. All rights reserved.

This report contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without Mercer’s prior written permission.

The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capitalmarkets discussed. Past performance may not be a reliable guide to future performance. Mercer’s ratings do not constitute investment advice i.e. the provision of a personal recommendation.

This report does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products or constitute a solicitation on behalf of any of the investment managers, their affiliates, products or strategies that Mercer may evaluate or recommend

For Mercer’s conflict of interest disclosures, contact your Mercer representative or see www.mercer.com/conflictsofinterest

14

http://www.mercer.com/conflictsofinterest

Mercer Limited is authorised and regulated by the

Financial Conduct Authority

Registered in England and Wales No. 984275

Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU


QUESTION AND ANSWER


Heather Lamont, Director – Client Investments, CCLAHeather Lamont is responsible for managing relationships with our clients. Heather has worked in charity finance and management since qualifying as a chartered accountant in 1992. Her other qualifications include the Chartered Institute for Securities and Investment (CISI) Diploma, an MBA from Manchester Business School and a Diploma in Charity Accounting from the ICAEW. She joined CCLA in 2008, from the charities team at HSBC Global Asset Management. Heather is a trustee of three charities including the Robertson Trust, Scotland’s largest independent charitable grant maker.

Send in questions for Heather via the Q&A function.


Contact: [email protected]

mailto:[email protected]

ACF INVESTMENT WEBINAR

INVESTMENT PERSPECTIVE

Heather Lamont, Client Investment Director

6 May 2020

WHAT WE WILL COVER

• Review of investment markets and what has happened this year

• What the Covid-19 effect on investments might mean for your income and expenditure

− Income and capital returns in context

• Practical questions for you and your advisers

6 May 2020CCLA - ACF Investment Webinar19

MARKET REVIEW – 10 YEAR RETURNS TO 30 APRIL 2020

XYZ Charitable Trust20

Source: Bloomberg as at 30 April 2020

-50%

+0%

+50%

+100%

+150%

+200%

30/04/2010 30/04/2012 30/04/2014 30/04/2016 30/04/2018 30/04/2020

UK Equities +58.82% Global Equities +137.43% UK Government Bonds +87.37%

Cash +3.87% Inflation +22.44% UK Commercial Property +123.52%

WHAT 2020 MIGHT HOLD IN PRACTICE

• Most foundations can tolerate significant variations in the capital value of their portfolios

• Over time, we should expect valuations to rise again – though not at an even pace

• For some foundations, it’s income (dividends, interest, rent) that matters most

− And the income element of returns is set to fall far short of what we’ve seen in recent years


£0

£5,000,000

£10,000,000

£15,000,000

£20,000,000

£25,000,000

£30,000,000

£35,000,000

£0

£200,000

£400,000

£600,000

£800,000

£1,000,000

£1,200,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020??

Imaginary Foundation -how might 2020 compare to recent years?

(For illustration only - not actual data.)

Income in year (left hand scale) Capital at end of year (right hand scale)

QUESTIONS YOU SHOULD BE ASKING

• Does the collapse in investment income have a direct effect on what we can spend this year?

− It may not, for example if you already have a ‘total return’ approach to funding annual expenditure

− Forecasts for income depend on (highly uncertain) expectations for economic recovery

• If permitted, do we want to spend more from capital and reserves to offset the loss in income?

− From cash reserves, if you have them. Selling assets that have fallen in value is less comfortable.

− There’s a risk of selling what you can, not what you should.

− Active portfolio management should help to identify the best opportunities to raise cash.

• What effect would this have on the rate at which we can sustainably spend in the future?

• What can we learn from our experience and that of other foundations?


www.ccla.co.uk

CCLA Investment Management Limited (registered in England No. 2183088) and CCLA Fund Managers Limited (registered in England No. 8735639) at registered office, Senator House, 85 Queen Victoria Street, London EC4V 4ET,

is authorised and regulated by the Financial Conduct Authority.

Jonathan Gillett, Trustee, Polden-Puckham Charitable Foundation (PPCT)PPCF is a small foundation with six trustees and a part time secretary. Jonathan joined as trustee in 2013 and is chair of the Finance sub-committee. His only training in investment management is on ACF seminars. With the three other sub-committee members he engages with our asset managers on responsible investment particularly in relation to environmental impact. He is also a trustee of three other smaller charitable trusts.

Send in questions for Jonathan via the Q&A function.



QUESTION AND ANSWER



Thank you!

Please submit feedback via the survey at the end of the webinar.

ACF is grateful for the ongoing support of our Official Partners and for their expert input into these webinars

acf investment webinar: coronavirus context · spending rules check spending rules review spending...

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