Workshop at CFG's Annual Conference 2012

1. ‘Writing your charity’s investment policy
– a guide’
Speakers
Jane Tully, Charity Finance Group
Kate Rogers, Charity Investors’ Group

2. Jane Tully
Charity Finance Group

3. A quick overview of some macro data on
charity investments

4. How much are the voluntary sector’s investments
worth?

5. What type of investments
does the sector hold?
Investment assets: £64.6bn
Income from investments and cash: £2.4bn
Investment management costs: £246m

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

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

8. 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

9. 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

10. What should an investment policy cover?
— 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

11. 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

12. About our guide
— What is it for?
— Who is it for?
— How to use it?
— Template and examples

13. Kate Rogers
Charity Investors’ Group

14. Your written investment policy

15. Areas to cover
1. Introduction
2. Investment Objectives
3. Risk
4. Liquidity Requirements
5. Time Horizon
6. Ethical Investment
7. Management Reporting and Monitoring
8. Approval and Review

16. 1. Introduction
i. General Background and Financial Objective
ii. Investment Powers
iii. Governance

17. 2. Investment Objectives
— Motive?
— Return expectation?
— Capital protection vs inflation protection?
— Balance between capital return and income return?
— Total return

18. 3. Risk
i. Attitude to risk
ii. Assets
iii. Currency
iv. Credit/Counterparty
v. Other

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

20. 5. Time Horizon
— Charity life?
— Investment asset life?
— Expected changes in capital, income or expenditure?

21. 6. Ethical Investment
— Ethical investment policy?
— Negative screening
— Positive screening
— Engagement
— Direct vs indirect exposure

22. 7. Management, Reporting
and Monitoring
i. Management
ii. Reporting and Monitoring
8. Approval and Review

23. 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

24. 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

25. 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

26. 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