Investment Policy Statement
Introduction
This investment policy statement outlines the framework for how the Charity manages its investment portfolio.
We are a permanently endowed charity with its endowment representing most of its assets. The Endowment comprises a portfolio of directly held charitable and investment properties, as well as a portfolio of listed assets.
Roles and Responsibilities
The Board of Trustees are custodians of the charity’s permanent endowment as described above. They partner with chosen Investment Managers to develop and implement the Investment Policy and Strategy. In 2023/24, we engaged investment consultants to perform a complete review of our investment policy and choice of Investment Managers
Objectives
Our investment objective is to preserve the real value of the endowment over the long-term, while generating a stable and sustainable return to fund the Charity’s grant-making objectives.
Environmental, Social and Governance (ESG)
The Charity aims to improve its environmental sustainability, which also includes its investment portfolio. We will monitor the carbon intensity of the investment portfolio and aim to achieve overall lower carbon intensity compared to the broader indexes and ensure its reduction over time. We will also engage with the Investment Managers and encourage them to have comprehensive science-based Net Zero targets and strategies and build portfolios that are aligned with the Paris Climate Agreements and move to a low carbon economy.
The Board of Trustees scrutinise the ESG policy of the funds their Investment Managers invest in and their management of ESG concerns. They require the Investment Managers to be signatories to the United Nations Principles of Responsible Investments (UN PRI). The Investment Managers are required to be active stewards of the capital and actively engage with their investment companies. They must submit their voting records and engagement reports at least annually to the Board of Trustees.
Risk
The investment risks are monitored by the Board of Trustees via a risk register that grades risks before and after mitigations. This register is constantly monitored by the employee team and fully reviewed annually by the Board of Trustees.
Primary financial risks
- Missing return targets – the charity adopts a total return approach to its permanent endowment so can look at the income and capital returns on its investments and property portfolio.
- Volatility of the capital value – the Trustees will tolerate a loss of up to 45% of the investment portfolios value over a 12-month period due to market volatility. Such a loss would be expected to be recovered over time through the investment cycle.
- Forced disposal of assets in adverse market – the charity has a cash deposit account with 18 months cashflow required to provide a sufficient cash buffer to reduce the risk of force disposal of the investment portfolio.
- Inflation – under the total returns accounting approach the charity maintains a buffer within the permanent endowment for scenarios of high inflation and low returns. This set up was tested and operated effectively in 2022 and 2023 when such conditions (high inflation and low capital growth) were experienced.
- Reliance on single asset held with an active manager – the investment policy and strategy prevents more than 5% of the investment portfolio being held in one company. Cash balances must be deposited with institutions with a minimum rating of A- or invested in a diversified money market fund.
Reporting
The Investment Managers produce quarterly reports showing details of the portfolio, gains and losses, ESG updates and voting and management fees. They produce a full annual report to the Board of Trustees addressing the portfolio’s performance, macro-economic performance and projections for the next 12-18 months and ESG (non-financial).