5a - writing your charity's investment policy - kate rogers and jane tully

‘Writing your charity’s investment policy – a guide’

Speakers Jane Tully, Charity Finance Group Kate Rogers, Charity Investors’ Group

Jane TullyCharity Finance Group

A quick overview of some macro data on charity investments

How much are the voluntary sector’s investments worth?

What type of investments does the sector hold?

Investment assets: £64.6bnIncome from investments and cash: £2.4bnInvestment management costs: £246m

How much income is provided from the sector’s investments and cash holdings?

Estimated investment returns for voluntary organisations with incomes greater than £500k

Charity Commission Investment Guidance

Charities invest so that they can further their charitable aims

If trustees have - considered the relevant issues, - taken advice where appropriate; and - reached a reasonable decision, they are unlikely to be criticised for their decisions or adopting a particular investment policy

Charity Commission Investment Guidance Financial investment ‘Aims to generate the ‘best financial return within the level of risk considered to be acceptable’ (Main motive: financial investment)

Programme related investment (PRI) ‘Aims to use a charity’s assets to further its aims in a way that may also produce some financial return of the charity’ (Main motive: social return)

Mixed motive investment Where an investment cannot be wholly justified as either financial or PRI, it may be possible to justify as MMI Motive: social and finanical returns combined

— the scope of its investment powers — the charity's investment objectives — the charity's attitude to risk — how much is available for investment, timing of returns and the charity's

liquidity needs— the types of investment it wants to make, this might include ethical

considerations — who can take investment decisions (for example, trustees, an executive, an

investment adviser or manager)— how investments will be managed and benchmarks and targets set by which

performance will be judged— reporting requirements for investment managers.

— Charity Commission Guidance

What should an investment policy cover?

What should an investment policy cover for charities with an investment manager?

‘For charities using an investment manager, the investment policy should cover — the responsibility and remit of the investment manager— the principles that any investment manager must follow

when taking investment decisions on behalf of the charity ’

—Charity Commission guidance

— What is it for?— Who is it for?— How to use it? — Template and examples

About our guide

Kate RogersCharity Investors’ Group

Your written investment policy

Areas to cover

1. Introduction2. Investment Objectives3. Risk4. Liquidity Requirements5. Time Horizon6. Ethical Investment7. Management Reporting and Monitoring8. Approval and Review

1. Introduction

i. General Background and Financial Objectiveii. Investment Powersiii. Governance

2. Investment Objectives

— Motive?— Return expectation?— Capital protection vs inflation protection?— Balance between capital return and income return?— Total return

3. Risk

i. Attitude to riskii. Assetsiii. Currencyiv. Credit/Counterpartyv. Other

4. Liquidity Requirements

— Regular draw down requirement?— Income and/or capital?— Other planned spending?— Likelihood of unanticipated need for cash?

5. Time Horizon

— Charity life?— Investment asset life?— Expected changes in capital, income or expenditure?

6. Ethical Investment

— Ethical investment policy?— Negative screening— Positive screening— Engagement— Direct vs indirect exposure

7. Management, Reporting and Monitoring

i. Managementii. Reporting and Monitoring

8. Approval and Review

Examples

1. ABC Foundation - grant making - total return- property held directly- investment committee- two investment managers

2. Operational Ethical Charity - operating charity- short and long term reserves- ethical investment policy - negative screening- finance committee- one investment manager

Examples

3. Permanent Endowment - balance capital and income- income target- investment committee- asset allocation strategy- investments selected by investment committee

4. Cash Charity - holding only cash- no investment committee or manager

Examples

5. Pooled Family Charity Trust - small charitable trust- single investment in pooled fund- reviewed and monitored by trustees

6. PRI Local Foundation - large grant making charity- programme related investment portfolio- financial investment portfolio- investment and loan committees

Aims… and difficulties

— Helpful examples, and useful format for those starting from scratch— Not an additional burden— Not suggesting existing policies should be rewritten — Not attempting to represent all types of charity

Notable gaps: International Charity (Currency)Ethical including positive screening and engagement

— Governance specific to each individual charity— Length and format

— Not a cut and paste for your own charity policy